Zillow Market Pulse: September 11, 2020

September 11, 2020

Jobless claims increased for the fourth straight week. Mortgage lending standards tightened in August. And prices rose strongly last month, despite muted underlying inflationary pressures.

Claims for jobless benefits increased for the fourth straight week

• 1.7 million claims were filed last week, up slightly from 1.6 million in the prior week.
• More claims were made through the Pandemic Unemployment Assistance program – created as part of the CARES act – than through traditional state programs.

Mortgage lending standards got tighter in August

• The Mortgage Bankers' Association's Mortgage Credit Availability Index (MCAI) fell to 120.9 in August, 4.7% below July's level.
•  Lending conditions have tightened significantly since the Winter, but had begun to loosen in July.

Prices rose for the third straight month, but overall inflation pressures remain soft

• The Core Consumer Price Index rose 0.4% in August from July.
• Prices rose 1.7% in the 12 months ending in August.

So what? 

Last week's uptick in initial unemployment claims filed – the fourth straight weekly rise – was the latest indication that the economy's recovery is slowing. The expiration of enhanced jobless benefits has failed to coax people back to work, and the fact that there are far more unemployed workers than there are available jobs also doesn't help. As of August, there were 11.5 million fewer jobs in the economy than there were before the pandemic arrived, and in July there were about 8.5 million more unemployed workers open jobs. Almost 30 million people are estimated to be on some form of unemployment aid, although the real number is probably slightly lower. And many unemployed workers are having to get by on about 40% of their pre-pandemic earnings, likely significantly denting their accustomed quality of life. According to the newly revamped Census Household Pulse Survey, 32% of households are experiencing difficulty paying for usual household expenses. It's unclear whether the official unemployment figures will follow this trend of increased jobless claims, but it is clear that any positive momentum that had been building in the labor market appears to be wavering.

This emerging labor market uncertainty likely played a large part in prompting mortgage lenders to tighten lending conditions in August. The MBA's Mortgage Credit Availability Index – a measure of how strict mortgage lending conditions are – fell to 120.9 last month, 4.7% below July's level and the lowest level in six years. The index has declined 33% from February, although it rose in July on signs that the economic recovery had been gaining steam. Lending standards tightened in the past month across all mortgage types, but were particularly strict for conforming loans – those that meet the standards for services by government sponsored enterprises — and jumbo loans. Lending criteria for conforming loans are the tightest they have ever been in the survey's history, as borrowers with low credit scores and/or unable to make large down payments continue to encounter higher rates and fewer loan options. So, while historically low mortgage rates should theoretically offer would-be buyers plenty of opportunity, qualifying for a home loan remains a challenging hurdle for many.

Despite three straight monthly increases in the Consumer Price Index (CPI), overall inflationary pressures remain weak. Core CPI – a separate measure of prices that removes volatile categories like food and energy prices – increased 1.7% from a year ago, still well below the 2% average rate that the Federal Reserve targets for price growth. This month's price growth appears to have been driven by hikes in the cost of used cars and trucks – likely resulting from the undoing of the kinds of sharp discounts offered at the beginning of the pandemic, rather than sustained price growth. The price of groceries (which rose in the pandemic's early months) fell in August, and rent grew just 2.3% over the last year, the smallest annual increase since 2013. With elevated levels of unemployment, dangerous increases in prices appear unlikely anytime soon — although today's release also helped to dispel concerns that the pandemic would deflate prices in the short term.

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