Housing Market Plunges
Bad news data continues to trickle in, as it is expected to do so for the next few months. Last week revealed the pandemic’s impact on home sales, when, unsurprisingly, sales of new and existing homes each fell in March.
Sales of new homes plunged 15% to an annual rate of 627,000 units, down from a 741,000-unit pace the previous month. A decline of such magnitude has not been recorded in nearly a decade. It should also be noted that sales in the first half of the month were not impacted by the national lockdown, even though the pandemic had started to make headlines. Sellers and potential home buyers were still behaving as close to normal as possible under the circumstances. Sales in the second half of the month, however, evidently suffered the full impact of the forced closing of most businesses throughout the U.S.
Larger declines are expected this month, as may businesses remain shuttered.
Regional Sales Follow National Trend
Similar to the national situation, sales of new homes fell in all regions, although the magnitude of decline varied across the four regions.
The largest declines, on a percentage basis, were in the Northeast and the West, both of which fell substantially — around 40% from the previous month. Sales in the Northeast were down 42% to 24,000 homes, but sales in this region represent less than 5% of U.S. home sales.
The West, which is the second largest region in new home sales, saw a decline of similar magnitude, with a 39% drop to an annual rate of 139,000 homes. Sales in the Midwest fell 8% to an annual rate of 79,000 units, while sales in the South — the largest region, which accounts for some 60% of new home sales — suffered less than 1% percent drop.
Existing Home Sales’ Drop Not as Severe
The market for existing homes also contracted last month, nationally as well regionally. Their decline, however, was more moderate than that of new homes.
Overall, sales of existing homes fell by 8.5% in March to an annual pace of 5.27 million units, down almost to where they were a year ago. Still, existing-home sales increased 0.8%, following a nine-month pattern of sales that were above those of the corresponding months a year before.
Similar to new home sales, observers expect sales of existing homes to drop further this month, as well as for some time into the future. According to the latest survey of consumers from the University of Michigan, consumers’ biggest concern by far is health, among three choices given: health, isolation or finances.
This means that on top of the economic strain under which consumers are living now, the fear of coronavirus will alter their normal behavior in unknown ways, and for an unknown period of time.
Like workers and businesses in many industries, individuals in the real estate industry have taken steps to minimize human contact, such as increasing the number of online viewings and maintaining social distance. Nonetheless, the pandemic will further slow the pace of sales, and in many cases, even deter consumers from purchasing a home.
But the final impact is impossible to asses, given that the current situation is unlike previous economic recessions, that had for the most part an origin in financial or economic factors.
Regional Sales Fall
Regionally, sales of existing homes fell across all four regions. The biggest decline on a percentage basis was in the West, where sales fell by 13.6% to an annual rate of 1.08 million units. Sales in the Midwest posted the smallest decline, falling 3.1% in March to a 1.25 million-unit annual rate.
But compared to last year, existing home sales actually increased in two of the regions. Year-over-year, in the South, sales increased by 0.9% to a rate of 2.29 million units, while in the Midwest, sales were up 4.2% to 1.25 million units (annualized).
For the most part, March’s sales drop was not large enough to erase the gains from a year ago.
Manufacturer Shipments and Orders Fall
The manufacturing industry, like many others, was hit heavily last month. Orders and shipments of durable goods each fell in March.
Shipments of durable goods, which includes products lasting at least three years, fell 4.5% in March to $241 billion for the month. Year-to-date for the first quarter, durable goods shipments are 2.8% lower than the same period of 2019.
But new orders for durable goods fell sharply by 14.4% in March, to $213 billion. Year-to-date through March, new orders totaled $706 billion, down 5.2% compared to the same period last year.
Even though new orders fell in March, manufacturers still have $1.14 billion in unfilled orders on their books, sufficient to sustain manufacturer shipments for nearly five more months at March’s sales pace. Buyers will likely be watching their sales very closely before determining whether to cancel those unfilled orders or not.
Unemployment Claims Remain High
Even though the number of people filing for unemployment benefits fell last week, the 4.43 million who did is still phenomenally high. There are now 26.5 million people who lost their job and filed for benefits over the last five weeks.
Added to this is the 7.1 million people who were already unemployed before the national lockdown took effect, for a total of at least 33.5 million people who are currently jobless in the U.S. The table below shows a breakdown that might be beneficial in understanding the full implication of our current situation.
Of course, the figures in this table are just an estimate, based on several assumptions. One is that the labor force total remains the same.
Also, the unemployed total might not reflect the true number. This is because some people who become unemployed are discouraged from seeking employment and thus are automatically removed from the labor force totals. A person is considered unemployed only if he or she is actively seeking for a job.
Mortgage Rates Remain Virtually Unchanged
For the latest four-week period, the 30-year, fixed mortgage rate has hovered around 3.33%, although it declined minimally the previous week to 3.31%. The current weak economy should normally push mortgage rates down, but the low rates have encouraged many homeowners who hold a mortgage to refinance and thus lower their monthly payments.
The Mortgage Bankers Association reports that applications for refinancing decreased just 1% the week of April 17. Yet, refinances were up 225% from a year before.
Manuel Gutierrez, Consulting Economist to NKBA
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal, indicating that the latest value is improving; “Yellow,” as it’s commonly understood, denotes caution because the variable may be changing direction; “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.
Note that all the data, except for “mortgage rate” and “appliance-store sales” are seasonally adjusted and are represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.
Single-Family Starts. This is the number of single-family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.
Existing-Home Sales. These data are issued monthly by the National Association of Realtors and capture the number of existing homes that were sold in the previous month.
High-End Home Sales. This series are sales of new homes priced at $500,000 and higher. The data are released quarterly by the U.S. Department of Commerce and are not seasonally adjusted. Thus, a valid comparison is made to the same quarter of prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.
Building-Materials Sales. These data, released monthly by the Department of Commerce, capture total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.
Appliance-Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as home centers.
We hope you find this dashboard useful as a general guide to the state of our industry. Please contact us at Feedback@nkba.org if you would like to see further detail.
