Zillow Market Pulse: July 22, 2020

As we continue to monitor economic developments during the COVID-19 pandemic, the Market Pulse team will begin sending updates three days a week, on Mondays, Wednesdays and Fridays. We'll also offer periodic deep dives into key market trends and industry topics.

July 22, 2020

Existing home sales finally show the fruits of strong housing market performance in recent months. Homebuyer demand appears to remain firm amid mounting risks. And a high-frequency survey suggests job losses have resumed just ahead of the expiration of key jobless benefits.

Existing home sales make up for lost time

• Sales of existing homes rose 20.7% in June from May, the largest one-month increase in the series' history.
• Inventory of for-sale homes rose 1.3% from May but remains 18.2% lower than a year ago.

Homebuyer demand holds firm amid rising risks

• The MBA for-purchase mortgage applications index rose 2% from last week and now sits 19% above last year's level.
• A separate survey shows people's willingness to buy a home is only slightly below where it was a year ago.

Census survey shows job losses have resumed in recent weeks

• According to the Census Bureau's Household Pulse survey, 6.7 million jobs were lost in the last four weeks, including 4.1 million last week alone.
• Enhanced unemployment benefits are officially due to expire at the end of next week, with no agreement yet in place for an extension.

 

So what?

After falling sharply in the early days of the pandemic, the housing market rebounded strongly through the spring – growth that has finally emerged in today's existing home sales figures. Sales of existing homes are measured when the deal closes, rather than when the contract is signed, making them more of a measure of homebuying activity from one or even two months before – in this case, when the nation was beginning to reopen from the economic shutdown brought upon by COVID-19. Enticed by mortgage rates that started low and have only fallen further, and by the fact that real estate remained an essential industry in most markets nationwide, eager home shoppers jumped at the opportunity to enter the market, making up for lost time and kick-starting a recovery that has carried into the summer. Low mortgage rates are poised to stay for a while, so buyer demand should stick around even as seasonal headwinds start to form. There are some storm clouds gathering, however, including broader uncertainty due to the surge in coronavirus cases and the prospect of disappearing fiscal support. Historically low levels of for-sale inventory could also thwart the strong gains the housing market has recently enjoyed. Inventory grew slightly in June but remains significantly below last year's level. The coming months will be a true test of the housing market's enduring strength and resilience.

Resilient buyer demand was evident in another strong reading of the Mortgage Bankers Association's measure of home purchase mortgage applications. The series has wavered over the last couple weeks, in part due to the persistent inventory shortage and possibly due to waning participation from the glut of would-be homebuyers built up earlier in the spring and summer, but low mortgage rates continue to keep potential home shoppers engaged. Indeed, it looks like buyer demand is holding firm well into July and in a time of unprecedented uncertainty. A separate report from the National Association of Homebuilders released yesterday stated that, as of Q2 2020, 11% of U.S. adults were considering the purchase of a home in the next 12 months, little changed from this time last year (12%). Timing of the report is important to note – the survey began receiving responses in mid-June, so some respondents likely submitted their outlook before the latest surge in case volumes across much of the country. But the economic outlook has been unclear for months now and, judging from this report, it appears that people's appetite for houses has endured.

Lastly, with enhanced unemployment benefits due to officially expire at the end of next week (and effectively expire in just a few days as final payments are sent out), the federal government has not yet finalized a deal on an extension of that program or additional fiscal support. Ahead of this deadline, the latest vintage of the Census Bureau's Household Pulse survey showed that job losses have resumed and that the nascent recovery in employment has all but come to an end. According to the report, employment nationwide fell by 4.1 million jobs in the last week alone, meaning that job losses totaled around 6.7 million in the four weeks that roughly align with the respective reference weeks for the June and July jobs reports. The survey is new and fairly experimental, but it was a solid predictor of the official June jobs report, which could indicate that July's jobs figures – due to be released on August 7 – will see a renewed decline in the labor market, just as key jobless benefits become unavailable.

 

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