Housing Shakes Off Pandemic’s Drag but Employment Report Sends Warning Signals

If home sales alone were an indicator of economic health, you might conclude that the economy has rebounded smartly from the pandemic-induced recession and is on a path for steady growth.

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The COVID pandemic has created a cluttered and confusing financial landscape.  It’s hard to know where to look or how to interpret what you see.  Consider the housing market.

Within a one-week period, you could find one headline warning “Storm Clouds Gathering over the Housing Market,” and another insisting, “Despite [the] Pandemic and [the Recession, Housing is Surging.”  Despite the obvious contradiction, both statements appear to be true. 

Recent statistics indicate that housing has been remarkably resilient – a rare bright spot in an otherwise grim, virus-stained economic picture.  Home sales have rebounded strongly since March, buoyed by low interest rates and pent-up demand.  But rising infection rates, concerns that lockdowns may be reinstated in some hard-hit areas of the country, and increasing evidence that the economic rebound is stalling, have clouded the housing outlook, raising questions about whether the resilience it has shown can be sustained.

Surprising Strength

The June housing reports reflected the market’s surprising strength. Sales of existing homes increased by more than 20 percent compared with May, reaching a seasonally adjusted annual rate of 4.72 million units and recording the largest month-over-month increase since the National Association of Realtors (NAR) began compiling this data in 1967.  

New home sales and home construction starts also soared. Starts increased by 17.3 percent in June compared with May, recovering from a five-year low in April.  New homes sold at an annually adjusted rate of 776,000 units, a 14 percent increase over May’s upwardly revised 20 percent month-over-month gain.  

Although home sales remain below their pre-pandemic level, industry executives are emphasizing the progress since the pandemic struck in March.  Among other positive indicators:

  • The NAR’s index of pending home sales increased by almost 17 percent in June compared with May, building on May’s outsized 43 percent increase over April.
  • Reflecting the continued scarcity of listings and resurgent homebuyer demand, homes have been selling quickly – within an average of 24 days in July, according to the NAR, compared with 27 days in June and 26 days in May.
  • Median existing home prices reached an all-time high of $295,300 in June, 3.5 percent above the year-ago level , the NAR reported.
  • Bidding wars, another byproduct of scarce listings, have become more common. Redfin reported that more than half of its offers drew competing bids in June. Boston topped that list with buyers competing for more than 72 percent of Redfin’s listings.

 A “Sustainable” Recovery

“The housing market is hot, red hot,” Lawrence Yun, the NAR’s chief economist, told the Wall Street Journal.  Buyers sidelined by pandemic lockdowns are  “trying to take advantage of the record low mortgage rates,” he said, sparking the gains recorded for the past two months.  The housing recovery “looks to be sustainable for many months ahead,” Yun predicts, “as long as mortgage rates remain low and job gains continue."

Those caveats are important and at least one of them (low mortgage rates) appears likely.  Citing evidence that the fledgling economic recovery has stumbled as the coronavirus epidemic has resurged, the Federal Reserve left interest rates unchanged at its July policy meeting. 

Fed Chairman Jerome Powell doubled down on the Central Bank’s vow to do all within its power to combat what he termed “the biggest shock to the U.S. economy in living memory.”  With the pandemic posing risks to both the near-term and mid-term economic outlooks, Powell said, policy makers “are not even thinking about raising rates.”

While lower rates will benefit the housing market, the reason for them – the weakening economic outlook – will not.  If the housing market’s performance of late has seemed at odds with the pandemic’s impact, recent employment reports have been brutally consistent with it.

Hiring Slows

Confirming the  concerns expressed by many economists, employers scaled back their hiring activity in July, adding 1.8 million workers to their payrolls, more than the most pessimistic analysts had predicted, but well below the nearly 5 million jobs added in June, and leaving the economy still with a net loss of 13 million jobs since March.  The unemployment rate fell  to 10.2 percent- a marked improvement since it hit 15 percent in April, though still above the  10 percent peak in the Great Recession. 

Some analysts are warning that July’s troubling employment numbers may understate the damage. One recent survey found that nearly a third of the workers who were recently rehired (and would not have been classified as unemployed in the Labor Department tally) have recently lost their jobs again.   A poll conducted by AP and the NORC Center for Public Affairs Research found that nearly half of the households that have suffered a job loss now expect the loss to be permanent; in the same poll in April, four of five respondents were confident that they would be rehired. 

“This recession has been really confused, because what we had was really a suppression where we told everybody to stay home — and that wasn’t really job loss,” Betsey Stevenson, a member of the Council of Economic Advisers during the Obama administration, told Politico. “The real question is, when you end the suppression, how many jobs are left? And boy, it sure looks like we lost a whole lot of jobs.”

Flattening the [Growth] Curve?

Adding to the indicators of labor market weakness, another 1.2 million workers filed for unemployment the week of July 27th, down from 1.4 million claims the previous week, but still elevated, to say the least.  Separately, Challenger, Gray & Christmas, an outplacement firm, reported that U.S. companies slashed nearly 263,000 positions in July, a 54 percent increase over June and the third-highest layoff total the company has ever reported.

Economists who had been predicting a relatively rapid recovery from the second quarter’s devastating 33 percent contraction in growth are becoming more cautious. 

“We are seeing evidence that the economic recovery is losing steam. It's not reversing, but it looks like growth is flattening out,” Daniel Zhao, senior economist at Glassdoor, told NBC News. “It seems like the recovery has slowed down and appears to be getting stuck in the doldrums.”

Nariman Behravesh, chief economist at HIS Markit, doesn’t think the economy will get ‘unstuck’ any time soon.  “[Since] the virus started to take off again in key states, the economic gains recorded in May and June “have [faded] rapidly,” he told NPR.  “Our view is, we’re not going to get to the pre-pandemic levels of economic activity until sometime in 2022.”