Housing Stands Poised to Lead a Recovery

NAHB Chief Economist Robert Dietz provides the latest weekly economic analysis on the effects of the COVID-19 pandemic: With one major exception, this week’s housing data showed some signs of stabilization after an effective two-month pause for major portions of the U.S. economy. While most indicators are down year-over-year, there are hints of a rebound in the data, provided businesses can continue to reopen as the virus slows its growth. As the housing sector enters this recession underbuilt, it is a sector with both pent-up housing demand and sensitivity to low interest rates, which places it in a good position to recover more quickly than other sectors of the economy. Indeed, in the most promising sign, mortgage purchase applications increased for the sixth straight week, supported by historically low mortgage rates (3.4% average). Data from the Mortgage Bankers Association found a 9% week-over-week gain, with a 54% improvement since early April and standing at the highest level since mid-March. These gains foreshadowed the surprise in the April new home sales data from the Census Bureau. The estimates revealed that the seasonally adjust annual sales pace of new, single-family homes was effectively unchanged from March, with the measured volume at a 623,000 annualized rate. The surprising April data (NAHB expected close to a 20% decline), and strong start in January and February, left new home sales for the first four months of the year 1% higher than the first four months of 2019. The April rate is nonetheless 20% lower than the January pace. A downward revision is still possible for the April sales estimate, but the initial report is a reminder of housing's potential to lead a recovery. The resale housing market did not fare as well as the newly-built market in April. As estimated by the National Association of Realtors, pending resales fell almost 22% for the month, with projected sales volume down 34% compared to a year ago. Listings have declined as owners of existing homes have been reluctant to place their residences on the market. In turn, this tight inventory environment has benefitted ready-to-occupy new construction as housing demand shows relative strength. Ultimately, whether the recent momentum in housing markets can be sustained depends on the labor market. It is the job numbers where the contrast between the recent gains for mortgage applications run counter to ongoing, historic challenges for employment. First-time jobless claims continued to be too high, but they are slowing. This week’s total was 2.1 million, leaving a net count of almost 41 million job losses (25% of the workforce) in just 10 weeks. However, continuing claims (ongoing unemployed) declined from 24.9 million to 21 million – a suggestion of renewed hiring. This macroeconomic uncertainty was also reflected in a staggering jump for the national savings rate, which increased to 33% in April, by far the highest reading since the government began measuring it in the 1960s. The rate was just 7.9% in January, with the recent gains a strong indicator of economic concerns as households build cash reserves. Consequently, consumer spending fell approximately 14% in April, but these savings, combined with increasing economic opportunity from the reopening of various sectors, should allow an unlocking of a significant amount of pent-up consumer demand. That impact, plus ongoing improvement in housing, should help set the stage for better economic data ahead.