New home sales came in at a 776,000 annualized rate in June (seasonally adjusted), up almost 14% from the previous month but only slightly higher than the pre-pandemic level and 7% higher than one year ago. All regions except the South posted annual gains. Sales in the Northeast more than doubled as the region emerged from the COVID-19 crisis while the Sunbelt is still in the midst of it.
As mortgage rates dropped below 3%, another record low, more renters bought homes. Supply sits at 4.7 months but even this leading indicator is lagged in COVID time. Mortgage applications for home purchases have come off from the highs of May and early June, while employment appears to have hit a plateau. Some data suggest another round of layoffs is underway; at the same time, new hiring efforts appear to be tepid.
Existing home sales, an even more lagged indicator of the housing market, posted a record 20.7% monthly gain in June. That reflects the catch-up in housing demand we saw in April and May. However, sales are still 11.3% below year-ago levels. The largest housing market in the U.S., the South, reported a 26% jump in monthly sales just before COVID-19 hospitalizations overwhelmed ICUs.
Supply remains very tight, with fewer than half of sellers believing now is a good time to sell their homes, according to Fannie Mae. Realtors have managed to show and sell homes during lockdowns; the resulting sales illustrate the pent-up demand. Going forward, the outlook is not as rosy.
The latest housing data follow the most recent unemployment insurance claims data, which included the first week-over-week increase since March; one estimate of the current unemployment rate is above 20%. We saw at the outset of the pandemic that consumer behavior changed before any states went into lockdown; fear was the driver. As long as the health crisis persists, consumers will be more likely to pull back from spending. One recent survey shows that nearly half of businesses that planned temporary closures are now permanently shuttered. For retail, it is almost two-thirds.
With the rise in permanent closures and unemployment claims come increased eviction and food insecurity risks. One measure by a national food bank shows that demand has risen an average of 70%, with almost half of customers being first-time food bank users since the pandemic began. As Congress prolongs debate over a new aid package, extended unemployment benefits and some states’ eviction moratoriums are expiring.
There is no economic recovery without a national health crisis mitigation plan. The purpose of the initial lockdowns was to buy time for the health agencies to come up with testing, tracking and treatment processes, as well as stock up on necessary personal protective equipment (PPE) for essential workers. PPE is again in short supply in hot spots while testing is too slow to facilitate tracking. Economic recovery, in the form of hiring, spending and consumer sentiment, is stalling according to high-frequency data, demonstrating that, even without mandated lockdowns, the rebound will be muted. It won’t be possible for the housing market to drive the economy out of recession if millions of people become homeless. Congress needs to mend the safety net now.
Copyright © 2020 Diane Swonk – All rights reserved. The information provided herein is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic, financial, investment or any other decisions. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.