Zillow Market Pulse: October 21, 2020

October 21, 2020

Residential construction activity ticked up in September, but is still falling short of where we'd expect given high demand and builder optimism. New York City remains a popular destination for movers. And while unemployment rates fell in most states, they often did so for the wrong reasons.

Construction activity improved in September, but there's room for more growth

• Housing starts rose 1.9% in September from August and 11.1% year-over-year.
• Building permits were up 5.2% from August to September. Single-family permits were up 7.8% in that same time.

Even as many move out, New York City remains a top destination for movers

• Tampa, Phoenix and New York City were the three most popular relocation destinations for households moving from any of the nation's 30 largest metro areas from March to September.
• Movers from San Francisco tended to remain in Western markets.

Unemployment improved in most states, but for the wrong reasons

• The headline unemployment rate fell from August to September in 30 states.
• But in more than half of those, the labor force participation rate – the share of working-age adults who are either employed or looking for work – also fell.

So what? 

After a slight retreat in August, the modest improvement in construction activity in September was welcome news, a good but not great report that reflects both soaring builder confidence and also likely some stubborn obstacles preventing the industry from truly finding its top gear. Permits were up strongly but growth in starts has been more fitful, up only slightly from August, perhaps reflecting some combination of hurricane and/or wildfire-related disruptions in activity, ongoing volatility in lumber prices, regulatory hurdles or - most likely - some combination of all of the above. Single-family construction continues to lead the way, with permits for freestanding, detached homes rising steadily since spring, at the expense of larger multifamily projects that have been more inconsistent. A historic shortage of for-sale homes on the market and mortgage rates that remain near all-time lows, combined with demographic tailwinds as millennials age into their prime home buying years, are keeping demand at a boil. This persistent demand should be and largely is music to builders' ears, but instead of a consistent and strong acceleration in building activity, construction levels have settled into a pattern of more-modest growth. The aforementioned supply-side constraints faced by builders are forcing them to be more selective in the projects they take on. September's home construction figures were another win for the housing market, but it feels like builders might have more in them given their current optimism and favorable market conditions.

The pandemic has prompted some city-dwellers – notably in San Francisco and New York City – to seek more space in the suburbs or in another market. But while many locals are moving away from New York, a new report suggests that the Big Apple has also remained a popular destination for out-of-towners to move to. According to data from Orbital Insight – a company that tracks the movement of goods and people – the three most popular destinations for household relocations between March and September were Tampa, Phoenix and New York City. The report, which distinguishes between temporary and permanent moves, also suggested that those moving from San Francisco during the pandemic decided to stay in the western U.S., either moving south to Los Angeles or San Diego or other warm-weather markets including Las Vegas and Phoenix. Households based in Florida or Texas generally opted to stay in their home state.

The national unemployment rate fell to 7.9% in September, continuing its steady decline from a recent high of 14.7% in April. As expected, unemployment fell from August to September in a majority of the nation's states, according to a report released Tuesday by the Department of Labor. But, much like the national rate, the September decline in headline unemployment in many areas occurred for the wrong reasons. Unemployment dropped in 30 states, but in more than half of those, the decline coincided with a reduction in the size of the labor force – people who are either employed or are looking for work. This suggests that a large portion of the improved joblessness rate is attributable to people giving up on finding a job altogether. In some states, more people left the labor force in September than came out of unemployment — suggesting that a move out of the labor force was made by some who were also employed in August. Other states demonstrated more-promising trends – in Arizona and Utah, joblessness fell while labor force participation improved. Preventing long-term joblessness is crucial for the fate of the economy's improvement, in part because longer absences from the workforce tend to result in eroded skills. This, in turn, makes it more difficult for people to find a job – and for employers to fill open positions – once the economic recovery finds a higher gear.  

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