Zillow Market Pulse: July 24, 2020

July 24, 2020

Sales of new homes rose strongly in June to exceed pre-pandemic levels. Another 2.3 million jobless claims were filed last week, with the expiration of crucial assistance programs looming. And participation in loan assistance programs remains very high, according to multiple reports.

New home sales surged in June to highest level in 13 years

• Sales of new homes rose 13.8% in June from May and are now up 6.9% year-over-year.
• The monthly read was the highest since 2007.

More than 2 million jobless claims were filed again last week, with no extension of benefits yet planned

• 2.3 million claims for unemployment assistance were filed last week, more than the week before.
• Enhanced jobless benefits officially expire next Friday.

More data show that a large share of consumers continues to face serious financial strife

• Nearly 25% of consumer loans are partaking in a relief program, according to TransUnion.
• Nearly 8% of all mortgages remain in forbearance, according to Black Knight.

 So what?

 Continuing the incredibly strong pace of monthly gains that began in May, sales of new homes have now recovered their losses realized in the pandemic and, somehow, sit at their highest levels in nearly 13 years – just before the Great Recession. More new homes have sold through June of this year than in any year since 2007, even as an unprecedented pandemic continues to put large portions of the economy on hold. The combination of low mortgage rates, a shortage of for-sale existing homes, and perhaps an increased preference for new, never lived-in homes continues to keep home shoppers motivated. The housing market has been remarkably resilient to the economic damage inflicted by the pandemic to this point, and in normal times, an improvement in new home sales would be a sign of more good things to come. That may well prove to be true in this case, but of course these are not ordinary times, and significant risks have emerged in just the last few weeks. The accelerated spread of the coronavirus across the country and expiration of key relief programs are two factors that will put the housing market's resilience to the test and could threaten the recent improvement in home sales. While the strong numbers today are a good indicator for the housing market at the moment, the coming weeks will be key.

 As the pandemic progresses and extensions to key disaster relief hangs in the balance, claims for unemployment relief continue to mount. For the 18th straight week, more than twice as many jobless benefits were claimed last week than in the worst week of the Great Recession. The 2.3 million claims that were filed last week was a higher-than-expected amount and one that comes just days before the expiration of enhanced unemployment benefits, a program that is currently paying an additional $600 a week to well more than 20 million people across the country. Talks of an extension to the program – as well as a new, more broad spending package – have increased in recent days but as of writing neither an agreement nor an official proposal has been made. The program officially expires on Friday of next week. Whether an extension or new deal is met, it's clear that, at the moment, the U.S. labor market continues to struggle, something that poses real risk to the broader economic recovery. High frequency reports indicate that job losses have resumed, in part due to the expiration of small businesses aid programs, and other measures suggest that there are still 14 million more unemployed workers than there are job openings. Absent additional fiscal support, these metrics are likely to get much worse.

Separate reports today shed light on the extent of households that are experiencing extreme financial hardship. According to TransUnion, almost 24% of all consumer loans – including mortgages, credit cards, auto loans and other personal loans – are taking part in some form of relief plan. A separate report from Black Knight showed that participation in mortgage forbearance programs increased this week to 4.12 million or about 7.8% of all loans. Lastly, recent data from the Census shows that 33% of renters have either slight or no confidence in being able to make their next monthly rental payment. Taken together, these suggest that the financial situations of a substantial portion of the country remain very fragile, placing increased importance on the swift passing of a new disaster relief package.

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