Zillow Market Pulse: May 6, 2020

May 6, 2020

Purchase mortgage activity continues to steadily increase, despite tight lending conditions. A historic decline in early private sector jobs data offers a grim preview of Friday's official jobs report. And a study suggests the nation's hardest-hit economies have not received a representative share of small business aid.

• For-purchase mortgage applications rise for the third straight week

  • A seasonally-adjusted measure of for-purchase mortgage applications rose 6% from last week.
  • For-purchase applications remain 19% below last year's levels.

• ADP: 20.2M private sector jobs lost in April

  • More than half of jobs in the leisure and hospitality sectors virtually evaporated in the span of a month.
  • The ADP report is not as closely watched as the official federal jobs report, scheduled for Friday, but is generally a good leading indicator.

• Survey finds a majority of small businesses expect to fail in next six months

  • A separate study finds no relationship between the share of a state's population that has filed for unemployment and the receipt of small businesses aid.
  • There are about 30 million small businesses in the country, employing about half the nation's workforce.

So what?

A key measure of purchase mortgage application activity increased from the week prior for the third week in a row (though remains down almost 20% from this time last year), suggesting activity in the housing market is picking up as qualified buyers grow confident enough to throw their hat in the ring. And you can't really blame them: Average mortgage rates have steadily fallen in the last few weeks and now sit near their all-time lowest levels. Of course, averages don't tell the full story of what's happening across markets. Rates associated with unconventional loan types and less creditworthy borrowers remain elevated, part of the reason why refinance activity has declined in each of the last three weeks. According to the Mortgage Bankers Association, purchase application growth was particularly strong in Arizona, Texas and California. Washington and New York, meanwhile, both saw a weekly improvement but took a slight step backward in terms of annual growth, suggesting that purchase activity may have plateaued in those states, after beginning to recover two weeks ago.

Today's ADP private payrolls report gave us a taste of what to expect on Friday when the official government jobs report is released. Today's report was extremely grim, but largely unsurprising, given what we have witnessed in employment claims data over the last month. Of the more than 20 million private sector jobs lost in April, nearly half of them (9 million) were felt by workers at large companies (500+ employees). And much like the official March jobs report, a disproportionate number of the job losses were experienced in industries with lower-than-average earnings. The leisure and hospitality industry saw 8.6 million jobs (more than 50% of the sector's March employment level) evaporate in April. To put this in perspective, in the worst month of the Great Recession, 800,000 jobs were lost. Today's report – and likely Friday's – showed that 10 times that number were lost in just one industry alone. The wounds are still raw, but it's likely that the conversation now will begin to move to how many of these jobs will return, and how quickly. March's official jobs numbers featured a sharp increase in workers who claimed to be temporarily laid off. But fears are growing that those once-temporary layoffs may graduate to a more permanent status. New data suggest this is already taking place across the country, and that businesses throughout the economy are planning for a much slower recovery period than once planned.

Lastly, new survey results released earlier today suggest that just over half of small businesses expect to be out of business in the next six months. The results follow a similar study released earlier in the week that also clearly outlined the existential fears mounting among a large share of the nation's small businesses – a sector that employs about half of the country's workforce. More than $600 billion in federal funding has been allocated toward small business relief in the last two months, but it remains unclear how easily the smallest businesses can access these funds, and how much support is being directed at the areas most in-need. A study conducted by the Federal Reserve Bank of New York reinforced the latter point, indicating that there is no correlation between the share of small businesses in a state receiving support and the percentage of the state's population that has filed an unemployment claim since the outbreak began. Given the speed at which these relief policies needed to materialize, lack of precision in these still-early days is understandable. But the study reinforces the fact that quickly getting relief to small businesses and communities that are most in need remains a very difficult task.

 

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