Zillow Market Pulse: September 16, 2020

September 16, 2020

Homebuilders remain as confident as ever. Some key retail sales figures took a step back in August. And rental payment rates continue to deteriorate, but slowly.

Homebuilder confidence reaches new highs

• The National Association of Homebuilder's Housing Market Index rose 5 points in September to reach 83, a new record.
• All three of the index's components – measuring projected buyer traffic and sales expectations – rose to all-time highs.

Retail sales figures underwhelm

• Retail sales increased just 0.6% in August from July. Core retail sales, which omit spending in volatile categories, fell 0.1% on the month.
•  Absent additional fiscal assistance, retail sales volumes are likely to slow further into the Fall.

Apartment rental payment rates are barely holding on

• 86.2% of apartment households made a full or partial September rent payment through the 13th of the month, according to the National Multifamily Housing Council.
• That rate is 0.7 percentage points lower than the rate through this point in August.

So what? 

The housing market has shown remarkable resilience through the pandemic, and in many regards, the new homes sector has led the charge. New home purchases in July were up 36.3% from a year before, and more new homes have been sold through July in 2020 than were sold through the same period in any year since 2007. A shortage of available for-sale existing homes, still-low mortgage rates and a possible and likely shift in preference toward new, never lived-in homes have likely combined to drive business to home builders — and they are clearly taking notice. Even as lumber prices continue to skyrocket, homebuilder confidence has ballooned in the last few months and reached an all-time high in September. Having steadily increased through 2019, confidence among builders plummeted in the initial months of the pandemic but has since staged a remarkable comeback to levels above and beyond where they were leading into the economic crisis. The improved optimism is likely to show up in increased building levels (August's residential construction figures will be released tomorrow morning) but some factors may inhibit a smooth transition from eagerness to activity — notably including recent lumber shortages and price volatility.

August's retail sales figures continued the steady stream of data pointing to a slowing economic recovery. Overall spending continued to improve, growing 0.6% from July, but the monthly improvement was much weaker than the previous three months. And the previously-stated 1.2% monthly growth in July was revised down 0.3 percentage points, and core retail sales – which excludes volatile categories and most closely aligns with the consumer spending portion of GDP – actually fell in August from July. The slowdown is evidence that expired fiscal assistance programs, particularly an extension of key unemployment benefits at a time when more than 25 million Americans remain unemployed, are increasingly missed — and it's likely that spending will slow further in the Fall. Today's report also sheds light on a shift in how consumers are interacting with retail outlets during the pandemic. Spending at restaurants and at physical clothing stores were both down more than 15% compared to August 2019. But purchases at "nonstore" retailers (including online stores like Amazon) have seen sales increase 22.4% over that same period. Even so, spending at those digital outlets was flat in August compared to July.

A sluggish rate of rental payments reported last week was attributed to a late Labor Day weekend potentially impacting payments, and today's report from the National Multifamily Housing Council suggests that was likely the case. Almost ⅞ (86.2%) of households made at least a partial rental payment through September 13th, just 0.7 percentage points fewer at the same point in August and 2.4 percentage points less than the payment rate this time last year. But while Labor Day's timing inflated last week's headlines, rental payment rates undeniably continue to deteriorate. What is unclear from the NMHC report is what share of those payments are partial, figures that would offer more insight into the stresses that landlords and apartment owners are facing as the pandemic rolls on. For now, though, the fact that payment rates are not in a complete freefall is good news for the apartment rental market.

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