We knew the April labor report was going to be bad, and it was. “Dismal.” “Devastating.” “Catastrophic.” Economists, who usually refrain from hyperbole, gave in to it in the face of statistics unlike any they had ever seen or expected to see. The economy shed 20.5 million jobs for the month and the unemployment rate hit 14.7 percent, both numbers shattering previous records.
It is not just the size of the “devastation,” but the speed with which it has occurred, Nick Bunker, an economist at Indeed, a worldwide employment search engine, told Business Insider. "The fact that we're seeing magnitudes that big in [just] two months, it's hard to wrap your mind around," he said. It is also hard to believe that just two months ago, the economy was churning out an average of 150,000 jobs a month and the unemployment rate was 3.5 percent – a 50-year low.
Hourly wages increased in April, but that wasn’t good news. It indicates that low-wage workers have borne the brunt of the job losses. And we haven’t seen the worst of those losses yet, private sector economists and government officials agree. Kevin Hassett, a White House adviser, has cautioned that the unemployment rate could hit 20 percent by June. What happens after that depends on how quickly, and how strongly, the economy rebounds.
Hopes and Fears
The hope, expressed by some analysts, is that many of the unemployed workers will be rehired as states lift their lockdowns and the economy shifts from reverse into drive. “If that is true, this will be the shortest depression in history,” Robert Frick, chief economist for Navy Federal Credit Union, suggested.
The fear, shared by many, is that some of the businesses shuttered during the pandemic won’t reopen and temporary job losses will become permanent. The even greater fear, also widely shared, is that states easing Covid 19 restrictions too early, without adequate strategies for containing future outbreaks, could be forced to backtrack, kneecapping any fledgling recovery before it gains traction.
Staggering job losses, upended lives, angst about the present and uncertainty about the future – all reflected in consumer surveys – hardly represent ideal conditions for the housing market, which is responding as you would expect. At the beginning of March, heading into the crucial spring market, home sales seemed to be picking up speed. The coronavirus sent the market quickly into reverse.
Existing home sales in March were about even with the year-ago total, but those numbers reflected activity before the middle of the month, when stay-at-home orders began to take effect. By the last week of the month, with 90 percent of the country locked down, sales were almost 12 percent below the same period last year – and still falling, according to the National Association of Realtors (NAR). New home sales declined by 15.4 percent in March, the largest one-month dip in more than six years.
The NAR’s index of pending sales, a predictor of future activity, fell more than 20 percent below the February reading and was 16 percent lower than the year-ago level. New listing prices, another leading indicator, also pointed south. Asking prices, which were growing at an annual rate of 8 percent in mid-March, had flattened year-over-year by mid-April, according to a Redfin report.
A Perfect Storm
Industry executives describe a perfect storm: Job losses and income reductions or the fear of them have forced many prospective home buyers to delay their purchase plans or scuttle them entirely; sellers, facing shrinking demand, are not listing their homes or are pulling listings already in place; and some lenders are reportedly tightening their underwriting requirements, making it more difficult for buyers who are still in the market to qualify for loans.
Consumer sentiment plunged 18.1 Index-points in early April, the largest monthly decline ever recorded by this University of Michigan index. Consumer attitudes toward housing have also taken a hit. Fannie Mae’s Home Purchase Sentiment Index lost 12 points in March, falling to 80.8 ─ its lowest reading in three-and-a-half years. The reading for April will almost certainly be lower.
More than 90 percent of the Relators responding to an early April NAR survey reported a steep decline in buyer interest since the middle of March. Sellers have also been backtracking. Redfin reports that more than 28,000 listings were pulled from the market during the week ending March 29. New listings were 10.8 percent below the year-ago level and total listings were off by more than 10 percent. By the last week of the month new listings were down 36.9 percent compared with the same period last year.
Temporary Pause – or Something Worse?
Industry executives think the negative numbers are temporary, reflecting a pause in an upward housing market trend that will resume once the pandemic recedes, when pent-up demand and low mortgage rates will reignite the fires the pandemic smothered. But some analysts predict that the pandemic-induced recession will be deeper and last longer than optimists hope, not just slowing the market, but derailing it for the rest of this year and possibly well into 2021.
A key question is how much the pandemic will undermine consumer confidence and for how long. Home builders, not surprisingly, are also feeling less than upbeat. Builder confidence, measured by a National Association of Home Builders (NAHB) index, fell from 72 in March to 30 in April – the largest monthly loss ever recorded and the lowest reading since 2012.
But the NAHB’s chief economist, Robert Dietz, predicts that housing could recover more quickly from this downturn than it has from previous ones, because the market isn’t suffering from the overbuilding that hampered previous recoveries. The key difference, he says: “We’re in an underbuilt market with short supply, unlike a decade ago, when we were overbuilt. That means housing has the potential to come back quickly and could be one of the sectors that will…lead the economy into a rebound.”