In last month’s COVID-19 Update Webinar, Ali Wolf, chief economist at Meyers Research, established that the “next few” jobs reports would be “critical” to gauge the health and direction of the economy. “I said we needed to add 1.5 million jobs in the month of August to feel comfortable that the economy is still on track,” Wolf says. “And, we’ll round up here—1.4 million jobs were added in the month of August. That was exactly what we were looking for.”
Of the 1.4 million jobs added in August, 20% were classified as temporary hires, many of them for the U.S. Census. The economy is still down 11.5 million jobs from where employment numbers stood in mid-February, but the gains in line with Wolf’s positive projections show that the economy is not backsliding. “In September, I want to see at least 1 million jobs added,” Wolf says.
Overall, 50% of the jobs lost in March and April have been recovered through August. Construction is among the top-performing sectors for job recovery at 61%, tied with “other services” and close to Trade: Transportation and Utilities at 59%. Among the sectors still struggling are information (-9%) and mining and logging, including oil (-59%).
Permanent job loss numbers stand at approximately 3.5 million, about half of their peak during the Great Recession. Meyers Research anticipates that the number will continue to rise. Both U-6 and U-3 unemployment rates have fallen from their peaks earlier in the COVID-19 pandemic, down to 14% and 8% to 9%, respectively. An estimated 3.7 million people have left the labor force during the pandemic; the nonparticipation rate rose to a peak of almost 40% before falling back closer to 38%. At the local level, New York and Las Vegas have the highest implied unemployment rates for August at 15.6%, while Salt Lake City has the lowest at 4.4%.
Despite ongoing uncertainty in the overall economic picture, new-home sales continue to surge as housing shines overall. The New Home Pending Sales Index from Meyers Research, backed by data from Zonda and Metrostudy, has risen 40% YOY in August, following a rebound trajectory from a deep dive in early April.
At the local level, home sales have risen between 60% to 80% YOY in a number of new-home markets. Minneapolis leads metros with a population of over 1 million at almost 90%, closely followed by San Jose and Sacramento, California. For the Bay Area, despite conventional wisdom that buyers are “fleeing” the area, Northern California builders report that households leaving the cities’ downtowns are generally still choosing to stay in the area’s suburbs. In a recent Meyers call, one Northern California builder noted that he had sold as many homes in the past six weeks as he had in the previous six months.
Colorado Springs, Colorado, leads the New Home PSI chart for metros with a population of under 1 million with a 120% change YOY. Metrostudy Colorado-New Mexico director John Covert attributes these banner numbers to a market well suited to adapt to COVID-19 lifestyle changes, including lower home prices, though base prices have risen rapidly in response to demand, and wage growth is not expected to keep pace.
Sales patterns have broken from the traditional “seasonal” pattern of years past. Of the 17,000 actively selling communities tracked by Zonda, 40% are experiencing a better sales pace in August than they did in July. Month over month, non-seasonally adjusted basis, Baltimore has the highest New Home PSI at the local level at just over 16%, followed by Tucson, Arizona, at just under 14%. Based on consumer search data, interest is going strong through September, with 41% YOY growth in traffic searching for new homes.
Moving into the future—the “now what?” of new-home sales—Wolf notes that every major life stage demographic currently has strong reasons to buy a single-family home. Millennials are moving into new life stages and wish to take advantage of low mortgage rates, potentially with help from parents. Gen Xers, in combination with high equity and low rates, have a “push” to move based on COVID-19 lifestyle changes. And while baby boomers have not regained their buying strength in every market, there are still enough in the market to meet demand. “If nothing else, COVID has reinforced this desire to be homeowners,” Wolf says. “There will be some people that will choose to or will have to [rent], but please do know that the American dream is still there and stronger than ever.”
Wolf identifies four key factors that will determine the strength of the market moving forward: home equity, stock market performance, interest rates, and consumer confidence. As of now, all except consumer confidence support the ongoing growth of the housing market—but all four come with risks from future unknowns, including foreclosure rates, rising inflation, rising COVID cases, job losses, and the outcome of the upcoming election.
Above all, “the biggest thing that I believe we need to keep watching is what’s happening to affordability,” Wolf says. Nationally, 60% of communities have raised their base prices in September, up from 40% last year. Moving into 2021 and 2022, Wolf cautions that “we have to watch for how many buyers we price out.”
According to Tim Sullivan, senior managing principal at Meyers Research, a number of builder respondents to Meyers’ monthly surveys reported that their sales had peaked in August, with some moderation in September. Twenty-two percent of builders reported a rise in gross contract sales in September compared with August, while 40% reported a decrease and 38% saw no change.
Enthusiasm is high for 2021, and some builders are intentionally trying to slow their sales paces in order to retain inventory, especially as lots remain very difficult to find. Floor plans haven’t shifted dramatically in response to COVID-19, but Sullivan reports builders are getting “creative” with small or flexible spaces.
Almost all builders—94%—had increased base prices in mid-September as compared with mid-August, with 50% reporting a significant price increase. Four percent had increased incentives month over month, and 8% reported a rise in cancellations.
Seventy-seven percent of builders reported confidence in their closing backlog through 2020. Across a number of top markets, community sales rates have risen to 2.5 and above, higher in many cases than previous peaks. In a surprise turn, sales rates in many active adult markets have skyrocketed. For example, in Nashville, Tennessee, sales rates per active adult community have risen from a trough of 0.5 up to 4.5, an 800% increase.
A majority of builders—69%—reported that anywhere between 51% and 75% of their buyers are based locally, within a 50-mile radius of the market. In the inverse, anywhere between 25% and 49% are not. Almost half, 45%, said their volume of out-of-market or out-of-state buyers has increased in terms of sales. The Southwest and Southeast regions are seeing the greatest share of out-of-state buyers, which Sullivan notes lines up with ongoing trends.
Overall, Sullivan and Wolf agree that while migration shifts are occurring, data does not support a “mass migration.” New York and San Francisco have seen elevated rates of move-out migration, according to data from United Van Lines, but Sullivan notes that many of these markets’ move-out destinations line up with pre-pandemic trends, including movement from San Francisco to less expensive tech markets and transfers from New York to Florida. “We can’t read too much into it yet,” Sullivan says. “Much of this migration is normal and natural.”
The next COVID-19 Update Webinar will be held Oct. 28 at 2 PM EST / 11 AM PST. Click here to register.
