A Weekly Economic Update from NAHB's Chief Economist

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NAHB Chief Economist Robert Dietz provides analysis on the effects of the COVID-19 pandemic: The pace of job losses from the imposition of social distancing is accelerating. New jobless claims expanded from 3.3 million last week to 6.6 million this week, placing the two-week total at 10 million. The March Bureau of Labor Statistics (BLS) labor market report captured the leading edge of this wave, with net job losses (meaning jobless claims reduced by hires) totaling a 701,000 decline. The BLS report is measured from data collected in the middle of the month. The unemployment rate increased off a 50-year low of 3.5% to 4.4% in March. Given the number of jobless claims during the second half of March, it is likely that the unemployment rate is near 10% at the start of April due to layoffs and furloughs. Home building and remodeling recorded a net job loss of 4,500 in March. Given the size of these labor market declines — and with more to come — NAHB will be revising its macroeconomic outlook in the coming days. In particular, the estimate for the second quarter GDP decline now appears to be near minus 20% on an annualized rate basis due to the scale and scope of government-imposed shutdowns. The acceleration of job losses and sudden stop associated with economic output imply significant declines for home construction and remodeling during the middle of 2020. However, construction continues to move forward on the majority of the 539,000 single-family homes and 671,000 apartments now in the construction pipeline.

Lending Standards Tightening

While economic losses pick up, credit markets have stabilized to a certain degree thanks to the aggressive actions of the Federal Reserve. According to Freddie Mac, the average rate for a 30-year fixed rate mortgage is 3.3%. However, according to the Mortgage Bankers Association, purchase applications were down 24% on a year-over-year. More fundamentally, anecdotal reports indicate lending standards are increasing for mortgage applications, and lending conditions for residential construction is tightening despite lower rates. Without financing for builders, housing starts will slow significantly. NAHB is conducting weekly polling, part of which asks about builder financing availability. In NAHB survey data from this week, potential buyer traffic ranked as the most immediate concern, with 69% of builders indicating major declines. 89% of remodelers noted that home owners cited concerns about interacting with workers and crews. Several more issues surveyed worsened this week. For example, the percentage of builders who cited an increase in delays of single-family permit approval increased from 57% to 80%. Building inspection delays increased from 50% to 78%. Multifamily concerns are rising about rent payments as well.

Consumer Confidence Down

Consumer confidence declined less than expected in March, falling from 132.6 to 120, which was the lowest reading since September 2017. Consensus expectations called for a decline to 110. Consumers have proved to be the most resilient part of the economy in recent history, but confidence will further decline as job losses continue. In other economic readings, the ISM manufacturing index came in at a better than expected level in March, but nonetheless the index still declined, revealing that manufacturing is down for many firms. U.S. exports and imports declined significantly in February as global trade slowed. In a sign of the severe impact on the hospitality and travel sectors, hotel revenue per room is down 80% compared to a year ago. TSA traffic at airports is down 90% from a year ago. The pace of the virus' spread is still accelerating, with 245,000 cases in the U.S., an increase of 30,000 on Friday. Some of this gain is due to increased testing, however, a stabilization in the daily case count is required for governments to consider when shutdowns can end. Some government modeling suggests a peak of cases in mid- to late-April with ongoing mitigation required into May and June. Getting the economy back into operation is ultimately the fix that is required to provide improvements to the financial and housing outlook.  

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