Strong expansion and wealth generation by Silicon Valley’s high tech industries is revitalizing the Northern California economy. Payroll job growth for the combined region outperformed the U.S. average through the second quarter of 2012, bringing the unemployment rate down to 8.4 percent as of June, just above the U.S. average rate of 8.3 percent. The weak performance of Facebook’s recent IPO has raised concerns about the potential for Tech Bust 2.0. For now, the tech boom is supporting strong high income job growth, in turn buttressing properties values, especially in Silicon Valley.
If high tech is California’s Dr. Jekyll, then the government sector is Mr. Hyde. Statewide government employment is still falling, now down 155,000 jobs since peaking in June 2008. State tax revenues have been a source of frustration this year. State revenues were weak again in July, falling 10 percent below expectations, increasing the likelihood of additional state-level fiscal tightening, which could be compounded by federal-level tightening next year. The poor performance of Facebook stock has added to the state’s budget woes. In July, the State Senate voted to authorize the issuance of $4.6 billion worth of bonds to fund the first phase of the proposed California High Speed Rail system.
Real estate markets in Northern California warmed up through the first half of 2012. However, Silicon Valley home sales fell in both June and July. On a year-over-year basis, home prices for the combined Northern California region are expected to flip back to the positive in the second half of this year. Housing starts, particularly on multifamily projects have recently been on the upswing. Declining vacancy rates and improving rents are incentivizing multifamily builders.
Click here for the complete 2012Q3 Northern California Regional Economic Update: NorthernCA2012Q3.