Job losses mount as real estate declines
By: QUINN EASTMAN - Staff Writer | ∞
NORTH COUNTY ---- San Diego County's economy hit an unfortunate milestone this summer: job losses in construction and real estate pushed the local unemployment rate above the national rate for the first time in seven years.
Regional unemployment has been rising, hitting 4.8 percent in July compared to 4.6 percent nationwide.
Economists who track Southern California said last week that because of reliance on the business of buildings during the last few years of economic growth, the region has little choice but to feel the pain now.
In California, construction and real estate represented just over 8 percent of the jobs in 2006 and 30 percent of the jobs gained since 2002 ---- more than any other state.
"No other state came close to California's reliance on real estate as an engine of growth," University of California, Los Angeles, economist Ryan Ratcliff noted in a recent report on the state's economy.
On top of that, the San Diego region relies on construction and real estate related jobs more than the rest of the state, according to figures from the state Employment Development Department.
In 2006, construction and real estate related jobs represented 9.5 percent of the jobs in the San Diego region and 27 percent of jobs gained regionally since 2002.
Several analysts saw a crunch coming. Job growth over the last few years, combined with limits on new building, led to ever more expensive homes, whose prices didn't keep up with wages.
Home buyers chose riskier mortgages with more flexible terms. So when the mortgage market soured, San Diego County was exposed.
"(Unemployment in) the rest of the U.S. economy will catch up before unemployment in the San Diego region falls back down," said Chris Thornburg, a principal at the Beacon Economics consultancy in Los Angeles. "It's because California was on the cutting edge of sub-prime lending."
In the first six months of this year, 36 percent of all mortgages were orginated in San Diego County required borrowers to pay only the interest or actually allowed the debt balance to increase each month, according to First American, a mortgage services firm.
Out of those, the share of such "alternative" mortgages in the San Diego region that were at risk ---- two months delinquent or heading into foreclosure ---- was 19.5 percent, just under the Riverside/San Bernardino area and less than Stockton and Sacramento, Thornburg found.
Mortgage woes spill over
He said he expected California's unemployment rate to rise to 6.5 percent or 7 percent over the next year before coming down again, with San Diego County reaching 6 percent during that period.
Trouble in the mortgage market hits the local economy in several ways, Thornburg said.
Job cuts in construction, real estate and finance cause the resulting unemployed workers to cut back their spending.
An important but indirect effect, he said, is that people who can't extract cash out of their homes by refinancing put off remodeling their kitchens or buying new cars.
But so far, the region's trouble with mortgages hasn't translated into more general consumer problems, such as more bankruptcies and credit-card delinquencies, several local economists said.
"An outright downturn is not expected, but the possibility of a recession in the local economy is at its highest point in years," according to University of San Diego economist Alan Gin's most recent economic forecast.
Bankruptcy filings heading up
At the same time, the rate of bankruptcy filings in San Diego and Imperial Counties is rising, according to data supplied by the Southern District of California's bankruptcy court, which oversees the two counties.
At around 700 per month, the current bankruptcy filing rate is about 50 percent higher than a year ago but hasn't reached the 1,000-per-month level of 2004, a time when the housing market was still climbing.
Just before a stricter federal bankruptcy law took effect in October 2005, local bankruptcy filings reached an unusual peak and then fell dramatically afterwards, chief clerk Barry Lander said.
Nowadays, a bankruptcy filing may represent an alternative to foreclosure rather than an unfortunate event that usually takes place along with it, he said.
Relying on real estate
The San Diego region did not rely on construction and real estate-related jobs as much as the Riverside and San Bernardino areas, where they represented almost 12 percent of the jobs in 2006. But it's more than the Los Angeles and Long Beach areas, where they made up less than 6 percent of the employment mix.
The region's reliance on real estate came partly because growth in other sectors was feeble, economists said.
"Part of the exaggerated importance of real estate jobs during this period was due to weak job creation in the non-real estate sectors in the wake of the 2001 recession," the UCLA report says.
Despite the local economy's emphasis on real estate, the area's relatively pricey homes could mean the region will avoid the worst of the mortgage troubles, the report says.
Foreclosure rates are highest in counties such as Riverside and San Bernardino, where buyers enjoy moderate home prices yet rely heavily on adjustable-rate mortgages. The combination is a sign of working families overstretching to buy a home, the UCLA report says.
In San Diego County, the volume of foreclosures per month has tripled over the past year, according to the Web site of the Pennsylvania firm Default Research Inc. However, the rate per capita over the last four months here is half that in Riverside and two-thirds that in San Bernardino counties.
Spread the risk, economists say
During the painful recession of the early 1990s, job losses in construction and real estate also played a large role, alongside hits to aerospace and manufacturing.
In 1992, the statewide unemployment rate hit 9.5 percent, and San Diego County's exceeded 7 percent.
After that deep recession, the regional economy became less dependent on aerospace and defense-related business. Tourism, biotech, agriculture, communications and sports equipment are all playing supporting roles as "tradable clusters," according to a recent report by the San Diego Association of Governments.
But such diversity might not be enough to sustain future growth, economists say.
Over the past year, San Diego County has gained more than 7,000 leisure and hospitality jobs even as 5,200 construction jobs were lost, according to state figures.
Gabriel Renteria, an economic analyst at the regional association, called this an example of an "disturbing trend": exchanging low-paying for high-paying jobs.
The weakening dollar ---- the euro recently passed $1.40 ---- may help export-oriented industries such as communications and sports equipment, but those sectors can't add jobs quickly enough to compensate for the loss of construction and real estate jobs, Thornburg said.
"Other sectors will pick up some slack, but it will take time," he said.
Some construction jobs will remain in North County because of big government projects such as highway widening and hospital construction, he said.
Contact staff writer Quinn Eastman at (760) 740-5412 or qeastman@nctimes.com.
Fast Facts
JOB GROWTH: Fears that the country could slide into a recession eased in September, as employers created the most jobs in four months and workers' wages grew solidly.
UNEMPLOYMENT: The unemployment rate crept up to 4.7 percent, the highest in more than a year but still low by historical standards.
MARKET EFFECT: Wall Street breathed a sigh of relief. The Dow Jones industrial closed up 91.70 points. The Standard & Poor's 500 index, the measure most closely followed by market watchers, reached a new closing high.
---- The Associated Press
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GFN wrote on Oct 7, 2007 9:30 PM:This is going to be a very difficult situation for the San Diego real estate, and construction related, fields. This downturn will last a long time. Hopefully, those involved in the industry saved a fair amount for the current rainy, soon to be stormy, days ahead during the good times. God Bless.
Syl wrote on Oct 7, 2007 10:12 PM:Employers may profit from the work of illegal aliens, but at the expense of the American tax payer. Most illegal aliens have almost no higher education and few skills, which results in them working for extremely low wages, “often in an underground economy where they pay no taxes on their earnings. It is estimated that as of 2006 there were 11 million illegal aliens residing in the United States. The fiscal expense of these growing numbers is estimated to be $33 billion dollars per year, that includes the cost to federal, state, and local governments. Unfortunately, almost no politician in the country wants to touch the issue of immigration in any serious manner because of the aforementioned power of the immigration lobby, as well as the growing number of voting eligible illegal immigrants (in particular their families) that are growing exponentially every year.
Remember 1990 ? wrote on Oct 8, 2007 4:44 AM:We are headed right back there due to crazy Iraq spending and low taxes. No way out now. Buckle up. It's going to be a bumpy ride.-
It is the : wrote on Oct 8, 2007 6:48 AM:Domino affect. There will be more jobs lost than just real estate.-
Sees it differently wrote on Oct 8, 2007 7:55 AM:What a crazy world we live in... Even with us teetering on the brink of recession, the stock market hits an all time high... I say, HUH... something tells me this time it is going to get ugly... Greenspan talked about irrational exuberance the last time the markets cratered... Do you think with unemployment going up, our dollar falling like a rock and bankruptcies climbing like a Saturn rocket that we may have a little irrational behaviour going on here.... yet Mr. Greenspan himself stepped up last week to say that the risk of recession has now passed.... who are you trying to kid... it is an election year and it is nothing more than the political hacks trying to soothe the worried voters before the election... but all of their words will not stop what appears to be on the horizon.... all the more reason to vote out all of the self serving politicians and get a new blood into the system so that we can try and fix what is broken... all of these problems could and should have been forseen... but I think they were too busy lining their own nests and were not worried about ours.... when our dollar falls, it is by design.... unemployment and bankruptcies are a sign of what is coming... people ARE NOT doing as well this decade as they have in times past... politicians can recite all the statistics that they want but I know what I see and I see people struggling to maintain their lifestyles in the face of our weak economy and lousy job prospects... 'nuff said....-
Anna wrote on Oct 8, 2007 8:19 AM:The bottome of the bucket had to fall out eventually.....California homeowners just got too greedy.
fedup wrote on Oct 8, 2007 8:40 AM:get rid of the illegals! the employment rate will go down.
^people are responsible^ wrote on Oct 8, 2007 9:31 AM:for their own choices. even when times are good, only a fool would spend all their money and extend themselves so drastically-
I filed bankruptcy wrote on Oct 8, 2007 10:15 AM:8 years ago, looks like I am going to file again!-
American-Irish Resident wrote on Oct 8, 2007 10:49 AM:Housing in decent neighborhoods here in Colorado is high priced as well. The taxes are lower here across the board. You will see a difference in quality of life if you cut your state taxes, local taxes, and your liberal social programs. It is not how much you earn, but how many dollars you keep in your own pocket. Taxes are lower in places like Colorado as the social programs are very limited here compared to California.
Higher Wages wrote on Oct 8, 2007 11:09 AM:A couple of years ago, reports from the Feds and locally kept saying that real family wealth was in decline, while people thought their annual 3% increase was making them wealthier. Higher costs in Health Care, Gasoline, Education, Property taxes etc. ate up all wage increases and then some. There are few buyers that can afford SoCal house prices and until that changes there will be nothing but problems in the housing market for middle class people. One solution might be to have the corporations that have been a fortune over the past few years to begin to share that wealth with the working people with higher wage increases. Hard to buy an expensive house when you keep falling more in debt every year.
Confused wrote on Oct 8, 2007 11:47 AM:I am confused why so many of you are happy that people are losing their jobs and homes. Remember, these same people who don't have jobs won't buy the things that keep you employed. It is a domino affect, so wishing their downfall will only get you closer to yours.
MJ wrote on Oct 8, 2007 12:03 PM:I see shades of what happened after the S&L crises -- only worse. This fallout from the mortgage debacle was soooo foreseeable -- but as before, the foxes were guarding the henhouse. The simple facts are that some very bright, but rather ethically challenged folks made a lot of $$ (the wall street wizkids and mortgage brokers, and the average joes traveled down the yellow brick road, living a life completely beyond their means. Hopefully we will get lucky and experience a modest recession, but this could get very ugly ... consumer spending drives our economy and methinks that holiday retail sales this year will be the clincher --- no home equity $$ to fund the spending sprees.-
Skip wrote on Oct 8, 2007 12:30 PM:What will the Illegals do next. Our own Department of Labor estimates that 1/3 of all jobs in the construction industry are held by Illegal Aliens. Will they now self-deport, or will they find another job market to carve out a niche.
John wrote on Oct 8, 2007 2:04 PM:Ahhhh... Trickle-down economics. Works every time!
It used to be predictible... wrote on Oct 8, 2007 2:32 PM:As a native Californian that grew up around the construction/development industry and stayed within it most of my life (all 45 years of it), I learned that these bottom-outs are predictible and happen every seven to ten years, almost without fail. The biggest difference this time is the number of people who overextended themselves with "creative financing", and are now losing their homes for that reason. "Back in the day" even when the construction industry slowed down, people weren't losing homes on top of it unless they were unemployed construction workers who didn't plan ahead for the enevitable downturn in the economy. Eventually things bounced back because we still had other industries and people not directly involved with construction/development to keep things afloat because they didn't have outrageous mortgage payments to make and wages were relatively equal to the cost of living. We've got so many people in such dire straights now, I suspect it'll take a lot longer than the usual 4-5 years for us to make an industry comeback. Along with all the other factors affecting our state, I suspect this will cause not only a ripple effect, but potentially the last huge, out of control wake that'll sadly pull a lot of people under. It's a shame people aren't proactive anymore, and seem focused on immedate gain; this is an example of what that mindset begets. Will we ever learn?
It is a different; wrote on Oct 8, 2007 3:00 PM:World now. The Military Industrial Complex controls our economy. If there is no WAR then there is no prosperity. We are lost as a country unless we can make money out of PEACE. Sure. good luck.
Lucky or smart wrote on Oct 8, 2007 3:03 PM:Lucky are those who bought a home in the70' and it's now paid off and with a VERY low property tax to boot. Unless a natural disaster hits, they are 'home free' and can retire in comfort. Still there are families who planned 'smart' without realizing what would befell the economy. Those are the ones who purchased in 2004-6 with homes worth hundreds of thousands LESS than their purchase price. Should we have seen this coming when the government tells us 'all is well' over and over again? Lucky or smart doesn't matter; it's the state we're in - called California Crumbling.
For all you people: wrote on Oct 8, 2007 4:27 PM:Who bought in to this USA agressive behavior. This is what you got. GOD help you.
Not so, Lucky wrote on Oct 8, 2007 5:05 PM:Those who bought homes in the '70's now often find have to give up their home to pay their medical bills.
Tom Paine-in-the-butt wrote on Oct 8, 2007 5:12 PM: In the past fifteen years, the wealth of the upper class has increased by over fifty percent, while the wealth of the middle class has declined by eight percent. Bush himself acknowledged where his loyalties were in a Washinton speech... The Founding Fathers would turn over in their graves if we fail to bring impeachment charges against this cabal. When he leaves office, his wake will include a devastated economy, a fetid moral atmosphere, and a legacy of alienation from each other and the world community. It is too generous to chalk up the abject failures of the past eight years to ineptitude. At a time when so many are struggling, Bush and Cheney are moving Haliburtons headquarters to Dubai, and keeping the Carlyle Group as a privately held armament and munitions holding company; thus better to avoid congressional inquiries into the rape and desolation that these men have inflicted upon this nation. There is justice that isn't dependent upon the Justice Department of the United States. Some welcome judgement, and some tremble at the thought.
Penasquitos resident wrote on Oct 8, 2007 6:09 PM:Can you say RECESSION
country without a paddle wrote on Oct 8, 2007 6:45 PM:If we were a civilized, peaceful country, we would be returning tax dollars to tax-paying citizens in the form of benefits, such as education, health care, and infrastructure. Just look around you, look at our society and how warped it has become. This is what happens when capitalism trumps democracy. Our values are being dictated by Wall street, marketers, and the "Gordon Geckos" of the world. Half the world scrapes by on $2 a day and we idolize athletes who make $10 million a year and flash 3 carat diamond ear rings. No wonder our children have become such narcissists. We have lost the most important resource America ever had. A resource that cannot have its value assigned by a Wall street analyst. It is a resource that made America truly great...the American character.
No Jobs wrote on Oct 8, 2007 7:21 PM:We will be competing MORE now with people who are here illegally,sucking off our economy. Their country is apparently a dictatorship with nothing to offer their citizens. We can continue to pick up the tab for these parasites who are up here leaching, paying no taxes and contibute nothing.
Karl wrote on Oct 8, 2007 7:25 PM:All you doom and gloom prognosticators need to get a grip. As a carpenter and a member of the " housing industry" I have seen the housing industry lead our Country in and out of recession for 3 cycles. This phenomenom is cylclical and will rebound when the time is right. All the numbskulls that bought at the peak of the market are no dumber than those in 1995 and 1779. This bubble lasted longer than most. See you all in 2015.-
wise old owl wrote on Oct 8, 2007 7:31 PM:This is the exact reason I left the construction industry 14 yers ago... I saw the writing on the wall. My friends thought that it was insane to leave such a high paying job with 100 percent of your benefits being paid. I sucked it up and started a totally different career. My career now pays me to take 5 weeks of paid vacation ,15 days of sick leave if needed , 9 holidays paid per year and I even get to work when it rains!!!!We all have the choice to work in a business that is not construction or economy based.-
For confused wrote on Oct 9, 2007 8:35 AM:People are happy to see a correction because they feel it is a restoration to a sustainable economy. It only seems like a step down to people that accepted the credit fueled boom as the new reality. Its like when you see someone taking lots of risks, you feel like a dummy when they keep getting away with it. Illegal immigration helps those employers that are willing to break the law for their own economic gains. Its part of the process of teaching the entire population that rules are suckers, and the only important thing is that you don't get caught.-
VistaRenter wrote on Oct 9, 2007 10:50 AM:The housing market isn't falling quick enough. I'm still renting, still shopping for a home, and still finding extreme overpricing everywhere. If I'm even close to whats considered an "average shopper", San Diego's in major trouble.
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