In the 13th weekly COVID-19 Update webinar from Meyers Research, chief economist Ali Wolf and senior managing principal Tim Sullivan continue to navigate what Wolf calls a “wild ride” of economic twists, turns, and contradictions.
According to Wolf, any risk of economic damage stemming from the ongoing protests is “all but gone.” Now, she says, “we’re just left with peaceful protestors looking for meaningful change.”
At two weeks past Memorial Day weekend, new COVID-19-related hospitalizations have reached all-time highs in Texas and Arizona. At the same time, purchase mortgage applications have risen by 13% year over year as of June 10, while Google search traffic for the phrase “should I buy a house” is falling back toward normal levels. Wolf emphasizes in both cases that “one week of a trend is not a trend, it’s a data point,” but notes that Meyers will continue to follow these metrics closely.
As a whole, Wolf says, the economy is loaded with “mixed messages.” The National Bureau of Economic Research has officially declared the start of a recession in February. Retail purchases and restaurant visits are on the rise, owing to pent-up demand. The Federal Reserve anticipates that it will not perform any rate increases until 2022, and will provide “more support as needed” to keep the markets functioning.
Following last week’s uncertainty about mortgage-backed securities, CBL—one of the largest mall owners in the U.S.—has announced that its ability to continue as a going concern is in doubt, with bankruptcy or debt restructuring as possibilities. American Airlines has moved its July flight schedule from 20% of last year’s flights to 55%, with particular demand for flights in Texas, Arizona, and Florida. United is likewise increasing its schedule to 30%.
In a shocking turn, the latest nonfarm payroll release shows that the economy added 2.5 million new jobs in May, with more positive news expected in June. However, Wolf cautions professionals to be careful jumping to conclusions with this data. The 2.5 million job increase is only a small uptick toward pre-COVID numbers, she says, and in terms of total nonfarm payrolls approximately 20 million Americans are still unemployed.
Why didn’t these numbers match what economists expected? Wolf attributes this to a number of initial jobless claim considerations. Approximately 50% of the people that applied for unemployment insurance weren’t approved, according to recent data; IJCs can include part-time work for people with multiple jobs; and computer errors have led to double counting in some areas. At the same time, over 6 million new workers left the labor force in May, and 4.3 million were miscounted, according to the Bureau of Labor Statistics. Based on these nuances, unemployment rate calculations fall between 13.3% and 16.4%. Counting people who are working part time for economic reasons, this rate rises to 21.2%.
In the construction sector, residential and otherwise, nonfarm payrolls have risen by 7.1% month over month in May, marking the second-highest performance after leisure and hospitality. However, compared to February, the construction sector is still down 7.8%.
Real-time data shows the labor market is continuing to improve, both nationwide and in the nation’s largest economies. Continued claims are holding at 20 million; Maine has the highest share of continued claims per 1,000 workers at 23%, followed by Nevada at 21%.
Despite uncertainty in the overall economy, housing market performance is growing strong. Forty-four percent of the market’s rate locks are from first-time buyers, down from almost 50% in the past weeks. At the same time, the resale market is “beginning to thaw.”
Active listing counts have come back to life in many cities, including San Francisco (up 30% month over month) and San Jose (up 21% month over month). Many of the sharpest month-over-month drops are in some of the strongest new-home markets, such as Houston (~3%) and Phoenix (~6.5%). On a YOY basis, most markets have a very constrained resale inventory, ranging from Orlando (~-9%) to Philadelphia (~-42%).
Given the question, “are we in the clear?” Wolf acknowledges that the economy is moving in the right direction, and that support from the federal government has been vital in keeping the country going. Home sales are benefiting from low interest rates, and it is estimated that 85% of households can maintain their standard of living for three to six months thanks to expanded unemployment.
However, Wolf cautions that the economy will lose a vital support structure if this stimulus is allowed to expire, and that without the proper policy safeguards a potential second wave could “[devastate] the economy.” At the same time, news of furloughs and businesses unable to pay their rents accompany stock market surges, healing job markets, and rising consumer optimism. “We still think it’s going to be a wild ride,” Wolf says, “[with] a lot of bumps along the way.”
Real-Time Housing Stats and Trends
Builder market share is rising in many markets, says Tim Sullivan. While it is uncertain how long this momentum could last in every market, “we say to our builder clients, take advantage of it now, the fact that you’re out there, you’ve got product that can be seen. And it’s new, that’s ultimately an answer to COVID,” Sullivan says.
This week, 43% of builders reported either slightly or significantly increased net contract volume over the last week, according to responses to a Meyers Research survey. This follows last week’s 66% share, showing contract volume has moderated somewhat. Builders reporting “no change” have risen from 26% to 36%, and 17% report a slight decrease in contract volume.
Sullivan attributes this moderation to price shifts. This week, 48% of builders kept base prices flat week over week, while 51% increased prices—up from 9% one month ago. Only 4% increased incentives, and only 8% reported a rise in cancellations.
Over 54% of builders report their backlog meets their 2020 closings plan, while 19% say their backlog is stronger now—a total of 73%. At the same time, over 50% of builders now report that they are “sticking to plan” for spec inventory, and 77% report that they are not experiencing any disruptions to government services, up from 57% one month ago.
Existing home showing activity is still down YOY in many states, according to ShowingTime data. However, in many cases activity has recovered significantly since the worst week of the pandemic. In Colorado, showing activity was down -5% YOY this week, up from -93% during the worst week. New York has been slower to recover; showing activity was down -26% YOY this week, up from -97% during the worst week.
In a Harris poll conducted in late April, 39% of urban residents said they were considering moving to a less dense place due to COVID-19, and 43% recently browsed a real estate website. Residents ages 18 to 34 were the most likely to consider this move. This demonstrates an interest in moving out of cities, but not an overwhelming exodus, Sullivan says. Still, he recommends builders “create places” that urbanites will want to move to, can afford, and can “still live the life, the excitement that they like.”
The next COVID-19 Update webinar will be June 24 at 11 AM PST / 2 PM EST.