Zillow Market Pulse: November 2, 2020

November 2, 2020

A shortage of for-sale homes may finally be eating into home sales activity, but construction spending figures suggest that builders are doing what they can to bridge the gap. Oil prices suffered their worst month since the Spring.

Pending home sales slide in September

• The National Association of Realtors' pending home sales index fell 2.2% in September from August.
• The reading was the first monthly decline since April.

Home building leads to growth in construction spending in September

• Construction spending increased 0.3% in September from August (SAAR), according to the Census Bureau.
•  Spending on new homes increased 2.8% on the month and almost 10% year-over-year.

Oil suffers its worst month since March

• West Texas Intermediate crude oil futures (for December delivery) fell 11% in October.
• Markets fear that rising coronavirus case volumes will sap demand for fuel.

So what? 

NAR's Pending Home Sales Index – a seasonally adjusted measure of the number of homes that went under contract in a month, and a leading indicator for existing home sales – declined 2.2% in September from August, the first monthly decline since April. Even so, home purchase activity and general measures of buyer demand both remain elevated and very strong by most measures. Pending sales activity in September was 20.5% above last September's reading, according to the report. Separate readings of for-purchase mortgage activity remain near their highest levels in more than a decade, and homes nationwide are typically going under contract in less than two weeks – a historically fast pace. But the monthly decline in homes going under contract was likely an indication that record-low levels of for-sale inventory are finally eating into people's ability to purchase a home. According to Zillow's data, there are 37.2% fewer homes for sale across the country than there were this time last year. And NAR's measure of months of supply (the amount of time it would take to sell through all currently-listed for-sale inventory) was just 2.7 months, the lowest ever recorded in its monthly series.

One method of addressing this persistent shortage of for-sale inventory is to build more. A report from the Census Bureau released today showed that spending on residential construction continues to improve, even as spending on other forms of construction has slowed. September's seasonally adjusted annualized rate of spending on private residential construction projects overall rose by 9.9% from a year ago and 2.8% from August. Spending on new single-family homes rising a whopping 5.7% from August to September – the strongest monthly improvement since 2009. Spending on private, non-residential construction – things like lodging, office space and other commercial buildings — fell on the month and on the year. Despite constraints posed by the pandemic and shortages in land and labor, home builders are as confident as ever and poised to do their part to address the overall shortage of inventory on a market filled with eager buyers. Expect continued strong residential construction figures in the coming months.

In March, oil prices plummeted more than 50% — and briefly fell below $0/barrell — at the onset of the pandemic as mandatory closures, supply chain disruptions and fewer people traveling via car, airplane or boat led to a severe glut of oil. Conditions stabilized over the summer, but the situation in October — while not nearly as bad as the early spring — still represented a disturbing recent low. Newly-announced shutdowns and market uncertainty as a result of recently rising coronavirus case volumes worldwide have injected new concerns into the oil market. It is feared that stricter lockdown measures will weaken already shaky demand for airline travel, something particularly worrisome at a time when some major oil producing nations, like Norway, had ramped up their pumping rate to near pre-pandemic levels. Tuesday's federal election in the U.S. is also a source of uncertainty for oil markets. This diminished outlook will place further pressure on the U.S. labor market: Exxon Mobil announced last week that it plans to lay off 1,900 U.S. employees.

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