In the two weeks since Georgia began to relax its shelter-in-place order, more than a dozen states have let their stay-at-home orders expire, Meyers Research chief economist Ali Wolf reports in this week’s COVID-19 Update Webinar.

Despite this, many businesses in these states have chosen not to reopen for safety reasons. According to data published by The Wall Street Journal, daily maximum traffic congestion in Charleston, S.C. and Atlanta, Ga. – which fell sharply when stay-at-home orders took effect – has yet to show any change following the reopening of both states.

On the anti-viral front, Oxford is reportedly on track to have a vaccine ready by September, while Pfizer’s vaccine is entering human trials with 360 volunteers in the first stage. According to Wolf, the September date and continuation of human trials depends entirely on the “safety and efficacy” of these vaccines.

A number of iBuyers, particularly Opendoor and Offerpad, have reopened for business after closing near the start of the crisis. According to Wolf, this presents a positive opportunity for builders – not only will iBuyers be able to help potential buyers sell their existing homes, but their return is an optimistic sign for the market. Housing activity has also resumed in the Bay Area, as of one week ago. As of May 6th, 7.5% of mortgages are in forbearance, up from 7% the previous week.

Initial jobless claims have risen to 30 million over the past six weeks, and Meyers projects an implied unemployment rate between 20% and 25%. Adjusted to account for furloughs, the “real” unemployment rate falls between 15% and 16%. According to Wolf, further insight on true unemployment and furlough rates will come with the release of April nonfarm payroll numbers on Friday, May 8th.

Hawaii maintains the largest share of initial jobless claims per 1,000 workers at 29%, tied this week with Kentucky. In all, Wolf estimates one in five U.S. workers who were employed in February 2020 are unemployed as of May 2020. California has become the first state to borrow money in order to pay unemployment claims, with Connecticut and Illinois expected close behind.

On the consumer side, the Bureau of Economic Analysis has recorded the largest consumer spending drop since 1980 in the past several months. At the same time, the personal savings rate has risen from just under an 8% baseline to almost 13% in March. By comparison, the Great Recession began with the personal savings rate of 2.5% and a lot of debt. Wolf attributes this to a fundamental change in consumer behavior, particularly preparation for tough times. However, a lack of spending means a lack of income for businesses. This, she notes, is where policy can step in to help – and provides examples of two Chinese provinces, Jiangxi and Zhejiang, where employers have been urged to give workers a half day off each week to shop or visit restaurants.

The national debt is growing by magnitudes, at an approximate rate of $7 million every five minutes. By the end of the COVID-19 crisis, it is projected to quadruple in size. The debt-to-GDP ratio, currently standing at 79%, is projected to rise to 108% - topping the previous peak of 106% at the end of World War II.

While these numbers may seem alarming, Fed chair Jerome Powell has emphasized that “This is not the time to act on [debt] concerns. This is the time to use the great fiscal power of the United States to… get through this with as little damage to the longer-run productive capacity of the economy as possible.” In short, preventing the economy from falling into a depression is more important now than managing the size of the debt.

While rising debt will protect vulnerable businesses today, it may in the long term lead to slower growth, including reduced government spending, higher taxes, and rising Fed rates. In the short term, the largest risk is deflation – general declines in prices that slow economic growth as asset prices fall while debt stays the same.

Real-Time Housing Stats

The rate of decline in the Mortgage Bankers’ Association’s Conventional Market Purchase Index has continued to shrink, reaching -21% YOY this week. Redfin’s Seasonally-Adjusted Home Buyer Demand Index is also on the rebound, up to -15% as of April 26th. Many builders are reporting that sales are 30%, 40%, or 50% off last year’s numbers, while a few outliers have reported meeting expectations or only falling 10-15% off expectations.

Overall, according to Meyers Research’s advisory team, builders are largely “adjusting to a new normal.” Qualified first time buyers – often in their late twenties and well financed - notes senior managing principal Tim Sullivan – are by and large still in the market, while “true” entry level buyers have fallen back. Overall traffic is starting to include a mix of new home shoppers. Builders are uncertain about how to proceed with new spec homes, as well as the status of backlog for 2021’s home shopping season. The percentage of building companies that have laid off or furloughed staff has also risen from 32% in early April to 38% on May 4th.

Week over week, 84% of builders have kept base prices flat – down from 97% one month ago – while 14% have increased their prices. Twenty-two percent have increased incentives week over week, while 26% have reported a rise in cancellations. Online builder traffic continues to rise, according to BDX data, with search numbers up 3% week over week and 13% year over year.

More builders have reported supply disruptions over the course of the past month, up from 29% on April 13th to 34% on May 4th. Thirty-four percent of builders are sticking to their previous spec construction plans, up from 23% two weeks ago. According to Sullivan, this indicates an awareness that “if we have product on the ground, we can sell homes.” The remainder have scaled back or paused spec construction.

The majority of builders are also still being cautious about land and lot acquisitions. 57% are selectively moving forward, while 35% are either moving forward as planned or adding new plans. This has softened to an extent over the past few weeks. According to Justin Esayian of The Hoffman Company, builders are largely “on the defense”, as controlling cash is a greater priority at the moment. However, they don’t want to walk away, and sellers are willing to work with serious buyers and provide extensions until they are ready.

Builders are also adapting quickly to the need for virtual selling tools. M/I Homes is highlighted for its virtual reality headsets, available by request to allow users to tour floor plans via smartphone, as well as Newland Communities for its drone flyover tours. In addition, with residents spending the majority of their time indoors, Meyers is anticipating a spike in interest in healthy home construction and systems.

Despite the tough numbers, Sullivan sums up the session with a recent quote from Warren Buffett: “Nothing can stop America.” To this Sullivan adds, “And why? It’s because of our ingenuity, our work ethic, it’s because I hope in a small way what we’re trying to do with our webinars – trying to figure a way out of this, not giving up, but moving forward.”

Next week’s COVID-19 Update will take place on May 13, 2020 at 2:00 PM EST / 11:00 AM PST.