Zillow Market Pulse: May 28, 2020

May 28, 2020

Pending home sales fell sharply in April. For the tenth straight week, U.S. workers filed more than a million unemployment claims. And national GDP declined in Q1 by more than first thought.

• April pending home sales fell to their lowest level on record

  • The NAR reading of pending sales – measuring transactions in which the contract has been signed, but the deal has not yet been closed – fell to 69 in April.
  • The 21.8% monthly decline was the largest since the spring of 2010.

• More than 20% of the workforce is receiving unemployment assistance or waiting for approval

  • In total, 3.1 million claims were filed for unemployment benefits last week.
  • The headline measure of continuing claims fell by 3.7 million, but this number is misleading.

• The Q1 slowdown in economic growth was sharper than first estimated

  • GDP fell at an annualized rate of 5.0% in Q1 2020, a faster pace than the previously stated 4.8% reduction.
  • A downward revision in private inventory investment was the principal reason for the adjustment.

 So what?

The second-straight steep month-over-month fall in pending home sales shouldn't come as much of a surprise — even if the headline numbers are a bit eye-watering. Contract signings – but not closures – on sales of existing homes were always going to take a hit in April, as the entire country was shut down due to the coronavirus, the labor market was reeling and people were still trying to fathom how the world was going to operate amid the pandemic. Some indicators of housing demand – like for-purchase mortgage application activity – have shown a remarkable recovery in recent weeks, but they were still at or near recent lows for much of the month of April. May's pending sales data will be a much better indication of how well this seeming increase in demand can translate into actual home sales. One potential roadblock to improved sales rates will be low levels of for-sale inventory. Levels of new listings have shown improvement in recent weeks, but overall inventory remains well below last year's levels. Sales will be constrained by supply side shortages even if/when demand signals persist.

Another week and another brutal report on the number of claims for unemployment insurance. Some are expressing hope in the fact that the rate of continuing claims – the number of cases in which unemployment benefits are actually being received – is going down, but that figure only tells part of the story. The 3.7 million-person reduction in continuing claims is being largely driven by two states - California and Florida. And both states have quirks in how they report these data: California has a bi-weekly reporting schedule, causing a volatile pattern in their claims' numbers; Florida has had well-documented issues with reporting this entire crisis, making their reported figures less-timely and less-trustworthy. But the broader issue is with the headline figure itself. The continued claims figure does not include applications made through the Pandemic Unemployment Assistance (PUA) program that was designed to help self-employed workers (and others) apply for benefits. Including those figures means that as of May 23, a total of 34.2 million-people were either receiving benefits or would be soon – about 20% of the U.S. workforce. What's more, and more generally, 3.1 million total initial claims (regular + PUA) remains very high by historic measures – more than 3 times higher than the worst week of the Great Recession. The fact that there are still so many claims for unemployment relief being filed this far into the pandemic likely suggests that job losses are a result of business failures rather than temporary slowdowns, and means that the recovery in the labor market will take longer than previously expected.

Lastly, the second estimate for GDP in the first quarter of 2020 suggested that the economy fell even faster in the first three months of the year than first thought. The main driver for this downward revision was a larger-than-first-expected downturn in investment in nonfarm private inventories – in other words, the goods that businesses keep on hand to use in production – which subtracted 1.52 percentage points from overall GDP. Consumer spending, meanwhile, was actually slightly better (or not as bad) than initial estimates. Sales declined, but not by as much as first thought. The release sets the stage for the Q2 GDP reading, which is sure to make the Q1 figures seem paltry. The Federal Reserve Bank of Atlanta's GDPNow model – a running estimate of real GDP growth based on available data for the current measured quarter – predicts that GDP will decrease at an annualized rate of 41.9% in the three months ending in June, which would be the biggest drop since the metric began being tracked quarterly in 1947.

Click here to read past editions of Zillow’s Market Pulse updates.

The post Zillow Market Pulse: May 28, 2020 appeared first on Zillow Research.

via Zillow Market Pulse: May 28, 2020