Zillow Market Pulse: September 25, 2020

September 25, 2020

Sales of new homes continued their remarkably strong stretch. But labor market strife continues: Pay cuts once deemed temporary are now becoming more permanent, and more than 20 million people likely remain out of work due to the pandemic.

New home sales surged in August

• Sales of new homes rose to 1.01 million (SAAR) in August, up 4.8% from July.
• It was the first time the series exceeded 1 million since 2006.

Like job cuts, pay cuts also becoming more permanent

• According to Pew Research, 60% of workers who have received a pay cut are still earning less now than they were pre-pandemic.
• Only about a third (34%) are back to their pre-pandemic wage.

The true number of workers suffering from pandemic job losses is difficult to calculate

• 1.5 million claims for jobless benefits were filed last week, and about 28 million workers are either receiving benefits or have recently applied.
• The real number of workers who are out of work due to the pandemic is likely closer to 21 million.

So what? 

New home sales increased in August to their highest level in more than a decade, continuing the housing market's torrid stretch of remarkable gains. More new homes were sold through August in 2020 than in any year since 2007, and the last time the market exceeded 1 million sales in a month (at an annualized rate) was in 2006. There's no question that homebuyer demand remains firm – applications for home purchase loans continue to rise, homebuilder confidence is at record highs and homes are selling at a remarkably fast rate. But questions around the potential durability of this strength may be starting to creep in. Inventory fell at its fastest annual rate since 2012 in August, and while homebuilders appear determined to fill the void, volatile lumber prices and logistical difficulties brought upon by the pandemic are making that challenging. Of course, pandemic-related factors and the recovery of the broader economy will also factor into sales volume in the coming months and year. So, while August's new home sales data was another resounding win for a soaring market, but it does offer some hints of the potential headwinds to come. 

Most recent discussions around the state of the labor market have centered on the slowing recovery and the fact that job losses that previously deemed temporary are now becoming permanent. A report from Pew Research this week added another layer to the narrative, suggesting that the move from temporary to permanent is also applying to pay cuts. Three-fifths of workers who have remained on a payroll but taken a pay cut are still earning less now than they were before the pandemic, compared to just a third (34%) who have returned to their pre-pandemic wage. About a third of adults said that someone in their household has had their wages cut as a result of the pandemic, with younger and lower-income households experiencing a higher rate. These households tend to have much smaller safety nets, making the impact of a pay cut far greater than it might be for higher-earning households. The report found that 46% of lower-income adults have had trouble paying bills in the last six months, with 44% of them saying they have had to tap into savings or retirement funds in order to meet those obligations. Even as the job market continues to recover — however slowly — many U.S. households, including those who have maintained employment, continue to suffer severe financial hardship.

Another 1.5 million claims for unemployment insurance were filed last week, about the same as the week before and the 27th straight week where initial claims greatly exceeded even the worst week of the Great Recession. Altogether, 28.4 million initial and continued claims for jobless benefits were filed last week. In normal times, this figure would represent the number of workers in need of aid, but it's important to note that the number of claims being filed is likely overstated. The gap between the number of people reportedly receiving aid and the number of people deemed unemployed in the official monthly report has ballooned recently – in August, the gap was about 15 million. The short answer for why this is is that claims numbers are likely overstated while the unemployment figures are understated. Delays in the processing of jobless claim applications ultimately lead to some claims being double counted. And the headline unemployment figures in the official jobs report fail to include those who are "employed but not at work" and those who left the labor force due to the pandemic. Taken together, the real number of people who are either unemployed or otherwise out of a job because of the pandemic is likely closer to 21 million, not including those who have seen their wages cut. Next week's September jobs report will offer more insight into the state of the labor market and the health of its recovery.  

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