In this month’s COVID-19 Update webinar, Ali Wolf, chief economist at Zonda, notes three core components of the recovery that have surprised her: how uneven the economic recovery is, how even the housing recovery is, and the tremendous impact of $3 trillion in stimulus money.
With housing on the upper end of the “K-shape,” which reflects the uneven state of recovery, Wolf cautions not to forget that “we, in housing, are benefiting from the fact that a lot of higher-income, higher-skilled individuals are still at work. Don’t forget that, since May alone, 6 million to 8 million more Americans have fallen below the poverty threshold. So while it’s great for some, it’s not great for others, and we have to think of the implications of these diverging economies.”
Overall, 52% of the jobs lost during the pandemic have been recovered. Total nonfarm payrolls rose by 661,000 in September, far below the 1 million Wolf anticipated, and permanent job losers are trending higher—up to 4 million compared with 7 million at the height of the Great Recession. The unemployment rate has rapidly improved from its peak and now ranges between 8% (U-3) and 13% (U-6), falling below the 10% to 17% unemployment rate observed at the height of the last cycle.
Wolf cautions that workers that leave the labor force entirely—4.4 million overall—are no longer counted in unemployment statistics. If they were added back in, the “true” unemployment rate would fall between 10% to 11%. At the same time, a larger number of unemployed workers are now classified as “long-term unemployed,” out of work for 27 weeks or more—39% overall in September compared with 4% in April.
In Wolf’s view, the initial stimulus package “staved off a depression.” Following an expected -31.7% drop in GDP in the second quarter, Zonda anticipated a 28.5% annualized increase in the real GDP for the third quarter. (The real number, released today, was higher at 33.1%.) According to Wolf, 46% annualized GDP growth would be required to return to pre-pandemic levels.
On the fiscal end, an infusion of $3 trillion in cash was equivalent to 15% of the value of the economy—$19.5 trillion—as it was before the pandemic. This enabled both the employed and unemployed to retain spending power‚ either to stay above board or to save. Many of these benefits have begun to expire, and, as of now, lawmakers have abandoned the possibility of a new federal stimulus bill, initially expected at the end of July, until after the election.
Overall, households have more money now than they did earlier this year—whether or not they are unemployed, owing to expanded unemployment benefits and reduced spending due to lockdowns. The amount of money in unemployed persons’ checking accounts fell by 74% from July to August—following the expiration of expanded benefits—but still sat far above January levels.
New single-family housing is by far the best performing of the different real estate verticals, with record-breaking year-over-year growth rates in many major markets and a number of emerging markets driven by work-from-home policies. Denver, Indianapolis, and Riverside/San Bernardino, California, are some of the top performers on Zonda’s New Home PSI.
The National New Homes Consumer Search Index by BDX remains high, up 38% YOY from October 2019. In the current environment, builders have sold through their spec homes and seen a 47% increase in contract sales happening, exceeding starts. Wolf anticipates that starts will need to rise into next year just to supply the homes sold. It is not yet clear whether builders will have to hold back sales in order to balance the market if this occurs.
The biggest short-term hurdle for new-home building professionals is next week’s election and the volatility expected to come with it. At the same time, COVID-19 remains a major risk, and a new wave of cases and hospitalizations has led to reversed reopening decisions in some areas. Overall, Wolf reiterates that “the longer this goes on, the bigger the issues we see.”
According to this week’s Zonda builder survey, builders’ top concerns include building material costs, the aftermath of the election, affordability, land prices, and gapping out, or running out of lots. (According to Zonda’s New Home Lot Supply Index, lot supply has fallen 8% YOY, while lot prices have risen 5.6%.) At the same time, they are not overly concerned about a stock market crash, high unemployment, or planning for the years to come.
Real-Time Housing Stats
During the month of October, 35% percent of builders reported that their gross contract sales are up month over month, compared with 22% one month ago, while 29% reported their sales were down, compared with 40% one month ago.
Ninety percent of builders reported that they had raised base prices in mid-October as compared with mid-September. Only 1% increased incentives month over month, and 16% reported a rise in cancellations over the same period.
With lumber futures falling, a majority of builders—85%—said that while they have not felt price relief, they anticipate that relief to come soon. Overall, builder confidence remains strong, with the NAHB Housing Market Index at its highest level ever.
Price increases have moderated slightly from December to October, and the absolute number of price increases has slowed. Sullivan ties this to a number of challenges in housing—particularly homes not achieving high enough appraisal values, cited by 42% of survey respondents.
Fifty-two percent of respondents reported being concerned about disruptions in government services affecting 2021 sales plans. Fifty-seven percent are concerned about supply disruptions, and 29% are concerned about labor shortages.
According to a Gallup poll, six out of 10 managers with remote employees said that they would in the future allow their employees to do their work more remotely than they did before COVID-19, even after the crisis ends. At the same time, in a survey of households that have moved or are planning on moving mid-pandemic, the top answer for persons aged 24 to 64 was “flexibility to work anywhere.”
This has translated into “major implications” for where remote workers are moving or interested in moving, Sullivan says. According to Redfin data, out of the top 10 metros with the greatest net inflow of interested users, all have users from gateway cities as their top origin point —whether Los Angeles, San Francisco, New York, or Orlando. At the same time, New York, San Francisco, and Los Angeles are the top three metros by net outflow of users, with Atlanta, Sacramento, and San Diego as top destinations, respectively.
The next COVID-19 Update Webinar will take place on Nov. 18 at 2 PM EST / 11 AM PST. Click here to register.
