Zillow Market Pulse: August 17, 2020

August 17, 2020

Homebuilders appear extremely confident that improving new home sales figures will continue into the fall. Fewer renters made payments this month than last, suggesting that expiring benefits may be starting to take a toll. And new reports outline divisions in unemployment rates across age, income, and education level.

Homebuilders are as optimistic as ever

• The National Association of Homebuilders Housing Market Index – a measure of homebuilder sentiment – rose to 78 in August
• The August reading was the highest in the 35-year history of the survey

Rental payment rates take slight step back in the second week of August

• 86.9% of households renting apartments made a full or partial monthly August rent payment as of August 13
• That figure is two percentage points below the share that paid rent through August 13, 2019 and 0.7 points below the level from the same point in July

The job market is still slowly improving, but certain groups remain far behind

• June employment among jobs paying $14 an hour or less was 20% below January's levels, according to Opportunity Insights
• A separate analysis shows that unemployment has also risen more severely for younger prime-age workers than older prime-age workers

So what? 

Much of the housing market's resilience this spring and summer can be chalked up to increased demand for newly constructed houses, and it appears that homebuilders are taking note. The NAHB's Housing Market Index – a key measure of confidence among the home construction industry – rose to its highest level ever in August, indicating that builders expect low mortgage rates and a shortage of available existing homes to allow the steady stream of prospective buyers to continue into the late summer. Indeed, new homes appear to have grown in popularity in recent months, likely due to the aforementioned shortage of overall inventory and possibly a growing desire for a never lived-in home. Just over 14% of all homes sold in June were newly constructed, down slightly from May but well above the 10.3% average share from January 2016 to March 2020. The question now is whether this optimism can fuel continued growth in home construction activity. While the two metrics are positively correlated, an uptick in home builder optimism doesn't necessarily mean that more new homes are going to be constructed. The gap between builder confidence and single-family home starts widened in the years following the Great Recession and has barely narrowed since. What's more, building materials costs have risen of late and government cutbacks have placed bottlenecks in the permitting process. Tomorrow's July home construction figures will be a key test of whether construction levels can keep up with increased eagerness among builders.

 Last week, it was reported that 79.3% of households renting apartments made their monthly rent payment – at least in part – during the first week of August. That rate was 1.9 percentage points lower than the same week in 2019 but 1.9 points higher than the first week of July. Unfortunately for the rental market, payment rates by the second week of August are now below those of July. The 86.9% of apartment households that made a full or partial payment by August 13 was 0.7 points less than the share who made their payments by July 13. The shortfall could be a sign of things to come as an extension to crucial federal relief programs – which research suggests disproportionately assisted rental households – has yet to be passed. Census data show that as of July 21, 32.5% of rental households expressed either slight or no confidence in their ability to make next month's rent, and that was before those key benefits officially expired.

Recent weeks showed that the recovery in the labor market is continuing, but at a slower pace than in previous months. Reports released in the past week offer more insight into how the recovery is playing out across different groups. Research from Opportunity Insights showed that while the number of employed people who make more than $32 an hour has risen 2% from January to June (and only fell by as much as 2%), the number of existing jobs that pay less than $14 an hour remains 20% below January levels. The next-highest wage bracket (between $14 and $20 an hour) has seen a similarly steep decline and muted improvement, indicating that less wealthy households continue to suffer financial uncertainty as key aid remains unrenewed. A separate analysis shows that unemployment has also risen more severely for younger prime-age workers (aged 25-39) than older prime-age workers (40-54), and a measure of persistent unemployment has increased more for young, college-educated people than any other group defined by age and education level. Should the labor market continue to improve, the unemployment situation will increasingly be defined by joblessness among certain groups rather than the nation as a whole.

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