In the past week, protests have taken hold in all 50 states in the wake of the death of George Floyd, an unarmed black man, at the hands of police in Minneapolis. “Our hearts ache for George Floyd, his family, and the injustice that’s persisted for years,” says Ali Wolf, chief economist at Meyers Research, in this week’s COVID-19 Update webinar. “And my message today is as the country feels more divided, we need to find ways to stick together.”
Wolf notes that gathering outdoors poses a lower COVID-19 transmission risk than gathering indoors, and that protesters have largely been wearing masks. However, she says the next 15 to 30 days will serve as an indicator of whether the U.S. can avoid a spike in cases. Duration will also serve as a factor in the protests’ impact on the economy and consumer confidence, both in urban and suburban locations. These include businesses’ ability to reopen and the institution and duration of curfews.
On the home sales front, the National Association of Realtors has reported that pending home sales are off 34% for April, near Meyers Research’s own 32% estimate. Lending requirements have overall grown stricter, with the greatest impact on jumbo loans and entry-level buyers.
The repayment deadline for the PPP small business loan program has been extended from two months to six months, and the payroll requirements for loan disbursement have been lowered from 75% to 60%. The first quarter GDP has been revised to -5%, with Meyers maintaining an estimate of -30% to -35% for the second quarter. The personal savings rate has grown to an unprecedented 35% in April, up from 13% in March, driven by a 14% drop in spending that month, as well as precautionary savings.
Unemployment data is spread across three metrics—initial jobless claims, true unemployment data, and the upcoming nonfarm payroll data for May, with none of the three providing a complete story, according to Wolf. April’s true unemployment data indicates that Las Vegas had the highest unemployment rate at 33.5%, followed by Detroit at 24.4% and Cleveland at 23.1%. Minneapolis had the lowest April unemployment at 9.2%, followed by DC at 9.9% and Baltimore at 10.4%.
As of June 3, 41 million people have filed for unemployment claims since the start of the crisis. Wolf notes that not everyone who has filed for unemployment will remain on unemployment, and that approximately 20 million continued claims have been filed as of mid-May. However, she cautions that this does not mean 20 million people are back at work, and that the drop in continued claims can also be attributed to rehiring, individuals not looking or refusing/choosing not to go back to work, system failure, or human error. Some claims may also “time out” of the system if they do not attain another job within 10 months.
Policy and Housing
“Fiscal support has kept the economy afloat,” Wolf emphasizes. According to the Bureau of Economic Analysis data, personal income has risen almost 12% YOY in April, owing in large part to the stimulus check and unemployment arriving during this timeframe. The wages and salary component of the personal income measure fell 8% month over month.
According to the Federal Reserve, only 42% of families have enough in liquid savings to cover their expenses for three to six months. With the addition of standard and CARES Act unemployment payments, plus the stimulus check, this proportion rises to 85%. While the additional unemployment payments are likely to be renewed, and more stimulus packages may be coming, July and September are noted as “critical” points for mortgage, rent, and utility payment shifts.
Purchase mortgage applications are still on the rise, currently up 19% YOY. In a Meyers Research survey of its division presidents, 35% reported a greater share of new traffic over “repeat traffic,” or buyers that were already searching for homes before the COVID-19 crisis, and 54% report about the same number of new and repeat buyers.
While housing has continued to follow a “V-shaped” recovery, Wolf warns that the broader economy is not doing the same—and that housing cannot continue to perform if the broader economy does not also recover.
According to JPMorgan’s consumer card spending tracker, consumer spending is down 21.6% YOY—up from -40% YOY in late March, but still far below normal levels. Over 90% of CFOs across the U.S. report that the COVID-19 crisis has had a negative or very negative impact on their business. Job cuts are still coming in waves, with Nationwide, IBM, Chevron, Marcus & Millichap, American Airlines, and Delta among the businesses affected, and distress is rising in the CMBS space, with delinquency rates spiking through May, especially in office and retail.
Real-Time Housing Stats
Meyers Research has observed first-time and entry-level buyers “dominating” the new home space in almost every market, while 55+, luxury, and investor segments are improving but remain slow. Supply disruptions are occurring in some markets— particularly in cabinets—but overall the housing sector is doing “surprisingly” well, despite ongoing economic disruptions.
Of the builders surveyed by Metrostudy/Meyers Research, 66% report that net contract volume has risen week over week, up from 62% the previous week and 50% three weeks ago. For the first time since the start of the crisis, no builders report that contracts have significantly decreased.
Fifty-four percent of builders kept base prices flat week over week, while 44% increased their prices, up from 36% the previous week. Eight percent increased incentives during this period, and 16% reported an increase in cancellations.
Compared with their original May plan, 61% of respondents report they either made or exceeded their original sales plans. This response varies widely by region; 63% of builders in the Southwest report exceeding their May plan, while only 29% of builders in the West report the same. As for home start plans, only 10% of builders anticipate building 60% or less of their original plan this year, while 40% anticipate either meeting or exceeding their home start plan.
Housing and Community Design
“There’s a new focus on the flex schedule,” says Tim Sullivan, senior managing principal at Meyers Research. According to a CommercialCafe survey, given the option after “things return to normal,” 41% of respondents said they would like to continue to work full time from home. Thirty-seven percent said they would like to work from home only part time, while 15% would not and 7% are unsure.
In the same survey, 28% of respondents said their biggest challenge in working from home was a lack of social interaction with co-workers, followed by a lack of work/home separation (25%) and distractions (23%). Sullivan said he believes that the idea of the “office as the clubhouse” will not be lost, though he anticipates a “reduction in size.”
As for how many of these changes could be “permanent,” Meyers Research anticipates that of the changes wrought by COVID-19, a nervousness around having others in one’s home will likely be the first to go. Home schooling and home entertainment may be flexible, while home workouts, grocery delivery, working from home, saving, and the “virtual element” in home sales are expected to stay important in the long term.
The next COVID-19 Update webinar will be held on June 10 at 11 AM PST/2 PM PST. Following this, the COVID-19 Update series will move to a biweekly schedule, with the next webinar on June 24.
