Zillow Market Pulse: October 26, 2020

October 26, 2020

New home sales slipped slightly in September, but remain incredibly strong overall. The stock market suffered its worst day in a month as coronavirus case counts surged to new highs. And protections for renters are being challenged in court.

New home sales fall short of expectations, but remain elevated

• September new home sales fell 3.5% from August, but were up 32.1% from a year ago, to 959,000 (SAAR) according to the U.S. Census Bureau.
• There were 3.6 months' of supply of new homes available for sale in September.

Financial markets reels as coronavirus cases surge

• New COVID-19 cases are rising in the U.S. at their fastest pace yet – more than 83,000 new cases were reported on Friday.
• The development, plus stalled negotiations around fiscal relief, caused the S&P 500 to suffer its worst loss in a month.

Eviction moratoriums are being met with some pushback

• A national eviction moratorium announced in September is being challenged in court in a case supported by the National Apartment Association.
• A win for the plaintiff could force evictions to rise sharply.

So what? 

September new home sales fell somewhat short of expectations and represent a small decline from prior months - but at just shy of 1 million sales for the month (at a seasonally adjusted annual rate), it’s clear the new home market overall remains very strong. Year-to-date, new home sales are up 16.8% from the same nine-month period in 2019. A favorable mortgage interest rate environment, an enduring desire for brand-new homes and a longstanding shortage of existing homes available for sale continue to pay dividends for home builders. And builders are clearly taking notice – their expectations for sales volume over the next six months are the highest they've ever been. The question now is whether these goods times can continue and for how long. A lasting inventory drought matters less for new home sales than for the re-sale market – roughly two-thirds (67.6%) of new homes purchased in September weren't even built yet. But broader economic and social factors including persistently high unemployment and the spread of the coronavirus represent considerable potential constraints for new home sales. For now, though, these issues don't seem to be much of a threat to what continues to be a very solid run for new home sales.

Data compiled by Johns Hopkins University showed that the number of new daily COVID cases in the U.S. has risen by an average of just under 69,000 over the last week, a new record and up about 22% from a week ago. Experts acknowledged that testing volume has increased, which would drive up positive numbers on its own, but suggested that this alone can't explain the strong uptick. Daily new case counts are now at record-high numbers in more than 20 states, most of which are concentrated in the Midwest. This surge coincided with talks surrounding the next round of fiscal stimulus coming to a halt — and financial markets clearly took notice. On Monday, the S&P 500 recorded its biggest one-day drop in more than a month. Equity indices overseas fell similarly, and some fears emerged that Europe may be headed towards a double dip recession. As the pandemic nears the end of its seventh month, the developments are a stark reminder of the strong hold the coronavirus still has over the economy. 

The federal government issued a national moratorium on rental evictions last month, allowing renters nationwide to file for up to four months of rent payment suspension if their economic well-being had been damaged as a result of the pandemic. But reports suggest that many evictions are still taking place and the eviction ban has been met with a slew of legal challenges in the weeks since. A recent hearing of a case against the moratorium has been supported by the National Apartment Association, a group that represents 85,000 landlords responsible for 10 million rental homes. A ruling in the favor of the plaintiffs could offer landlords more flexibility to work around similar moratoriums and potentially prompt a surge in evictions in coming weeks. As of October 12, more than 8 million households were not caught up on rent payments, according to the Census. 

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