Zillow Market Pulse: April 28, 2020

April 28, 2020

Home sales in China were up this week compared to the same week a year ago, the first such increase since the coronavirus outbreak began. The Federal Reserve moved to make loans available to small local and county governments. And a reading of consumer confidence took a big step back in April, but suggests people believe the worst might be over.

• Home sales in China are up year-over-year for the first time since the crisis began

  • On April 23, home sales in China were up 2.4% from the year before.
  • At the height of the outbreak, home sales in China were down as much as 98% year-over-year.

• The Fed expands its ability to lend directly to local governments

  • The central bank announced yesterday that smaller cities and counties would be eligible to participate in their new municipal lending program.
  • Estimates suggest that as many as 261 local governments are now eligible for the program, up from 75 in the previous iteration.

• Another key read on consumer confidence sees a historic decline

  • The Conference Board's Consumer Confidence Index fell 31.9 points in April from March, by far the largest one-month drop in the index's history.
  • A gauge of how respondents feel about the economy right now fell 90.3 points, but the outlook for six months from now actually rose 7 points.

So what?

A few weeks ago, the Federal Reserve announced it would be opening up a new lending facility enabling it to lend directly to state and municipal governments. The unprecedented move – one of many the Fed has taken in the last 6 weeks – would allow smaller governments to offload short-term debt from their balance sheets, freeing up some money for unemployment benefits and other short-term obligations that have emerged in in the wake of the coronavirus outbreak. The program has been largely well-received, despite some concerns from both political parties about eligibility standards they deemed too strict. Yesterday, the Fed announced an amendment to the program aimed at addressing those concerns. Going forward, smaller cities and counties previously deemed too small to participate in the program are now eligible to apply for loans. Counties with populations of at least 500,000 people (down from 2 million), and cities of at least 250,000 (down from 1 million), are now able to take advantage of this lending opportunity. Estimates suggest that the updated program will allow for as many as 261 state, city and county governments nationwide to partake in the program, up from just 75 eligible participants under the previous format.

In a milestone three months in the making, home sales in China have returned to a level above where they were last year, a major accomplishment in the country's recovery efforts. Some estimates suggest that residential transactions in China fell at least 99.7% from the day the first coronavirus case was discovered – to just 22 sales across the entire country – but now sit 2% above where they were this time last year. The improvement in sales is of course due in part to growing optimism amongst China's population, but other factors – aimed at stoking the market – might be at play as well. Some reports suggest that some housing projects have had their prices capped, resulting in a mad dash by buyers and property developers to buy homes and land with the expectation that prices will rise once the economy truly goes back to a "normal" state. The improvements in the real estate market have outpaced improvements in the broader consumer spending segment, which has risen in recent weeks but is still down 20% from a year ago. This could be what the next phase of the recovery looks like in the U.S., with consumers less inclined to engage in activities with lots of other people around (taking a flight, going to a theater, visiting a mall etc.) but OK with more-private activities like shopping for a home.

Much like the April reading of the University of Michigan Index of Consumer Sentiment, the Conference Board's Consumer Confidence Index offered a sobering take on how moods have shifted during the coronavirus outbreak, as well as views of the future. The 31.9-point fall in April from an upwardly-revised March total was easily the largest monthly decline ever recorded in the index, and offers clear evidence that massive job losses and daily disruptions have seriously sapped consumer morale. The combination of a 23.3 point decline in the share of people that said jobs were "plentiful" and an almost equal increase in the share of people who said that jobs would be "hard to get", clearly defined the currently pessimistic view of the job market. But the report also offered some evidence of hope for the near future. While the measure of people's confidence in present conditions fell a staggering 90.3 points from March to April, expectations for the next six months actually improved in April's reading, rising 7 points to 93.8. All told, the release indicates that while consumers are reeling from recent developments, the notion that the worst might be over appears to be setting in.

 

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