Homebuilders just saw the strongest June sales since the last housing boom, as pandemic pushes more buyers to the suburbs
A construction worker wearing a protective mask moves bricks to the back of a house as they resume construction on a home in Bloomfield Hills, Michigan, May 7, 2020.
Emily Elconin | Bloomberg via Getty Images
It is the perfect storm for the nation’s homebuilders. A sharp decline in the supply of existing homes for sale, increasing consumer preference for brand-new, high-tech homes with all the amenities for working and schooling, as well as an accelerating flight to the suburbs and exurbs made for remarkable housing demand in June.
While the official government count isn’t out until the end of the month, sales of newly built homes jumped 55% annually in June, according to a monthly survey by John Burns Real Estate Consulting, which has historically mirrored the U.S. Census report. It was the largest annual gain since homebuilding began again following the epic housing crash a decade ago.
It is also the highest pace of sales growth since the height of the unprecedented housing boom in 2005. That expansion was driven by negligent lending in the subprime mortgage market. This boom appears to be driven by the coronavirus pandemic.
“The anecdotal evidence is overwhelming. Sales in the distant commuter areas are the most robust,” said John Burns, founder and CEO of JBRC. “I believe a lot of computer-oriented people have proven to their co-workers that they can be productive from home, and have sensed, or officially been given the green light, to work from home at least a significant portion of the time after a vaccine has been found.”
That sentiment was mirrored in a survey by Arizona-based builder Taylor Morrison, which reported a 94% annual jump in June home sales. High-tech homes, and additional rooms for working and home schooling, topped the list of consumer demands.
“There is a bias to new. When I look at the research that our teams have been doing over the last 12 to 14 weeks, people are quoting, they want new, fresh, a place where wellness features will really make sense for them,” said Sheryl Palmer, CEO of Taylor Morrison recently in an interview on CNBC’s “Closing Bell.” “Most recently, we’re really seeing a pickup in folks saying they want more rural or suburban locations. Initially, there was a lot of talk about that, but it’s really coming through our buyers today.”
Sales of new homes were strongest in the Northeast, with an 86% annual jump, and in Florida, where sales popped 84%, according to JBRC. California saw gains, but it was the laggard.
Those sales are allowing builders to raise prices. About 57% of those surveyed said they had bumped prices higher, only in California did prices pull back some. About 14% of Southern California builders reduced net prices in June, the most of any region. Nationally, home prices for new construction in June were 4.5% higher annually.
Builders can raise prices because they are seeing a new buyer today, more serious and more impatient than ever. Buyer traffic is converting into sales at a record rate. In addition, consumers are largely choosing homes already built, even in the luxury segment. That is why the inventory of unsold, newly built homes dropped 20% annually in June to just a 1.5-month supply.
The issue for builders now is how to ramp up production quickly, when they never expected this kind of recovery. Most builders stopped buying land in March and laid off workers. Now they need more communities but are up against all kinds of hurdles, including high prices for finished lots and issues with local permitting offices which are not all open or running normally yet.
Land developers will benefit, as community counts are now 5% lower than a year ago. There is, of course, the Covid-19 wild card: If the economy shuts down yet again, and unemployment rises, the prospects for housing strength continuing into the fall will weaken. Record low mortgage rates are certainly helping, but at some point, buyers will inevitably hit their price limit. Already, in the high-priced existing home market, there are signs that demand is pulling back.
A man walks past the U.S. Capitol building in Washington, June 25, 2020.
Al Drago | Reuters
The number of homeowners in government and private sector mortgage bailout plans declined for the second straight week, as borrowers who got in earliest saw their plans expire.
More borrowers, however, are getting extensions of those initial three-month plans, proving the pain in the market is not over yet.
As of Tuesday, the volume of loans in active forbearance, in which borrowers are allowed to delay their monthly payments, fell by 435,000 from the previous week, according to Black Knight, a mortgage data and technology firm. That is the largest one-week drop yet.
Roughly 4.14 million loans were in forbearance, representing 7.8% of all active mortgages, down from 8.6% the prior week. That’s the lowest amount since April 28. These loans together represent just under $900 billion in unpaid principal.
By category, about 6% of all mortgages backed by Fannie Mae and Freddie Mac and 11.6% of all FHA/VA loans are in forbearance plans. Just over 8.2% of loans in private label securities or banks’ portfolios are also in forbearance. The largest drop in forbearances was in Fannie and Freddie mortgages, down by 200,000 during the week
“The reduction of roughly 435,000 was driven at least in part by the fact that more than half of all active forbearance plans entering the month were set to expire at the end of June,” said Andy Walden, an economist with Black Knight. “While the majority of those have been extended, this week’s data suggests a significant share were not.”
More than 26% of loans in forbearance were extensions, according to a count by the Mortgage Bankers Association for the week ending June 28. That share has increased steadily for the past three weeks.
The bulk of the loans in forbearance are government backed and part of the mortgage bailout program in the CARES Act, which President Donald Trump signed into law in March. It allows borrowers to miss monthly payments for at least three months and potentially up to a year. Those payments can be remitted either in repayment plans, loan modifications, or when the home is sold or the mortgage refinanced. For loans not backed by the government, most banks and private lenders have set up similar plans.
While the drop in active mortgage forbearances is encouraging, recent spikes in coronavirus cases in various states, in addition to the expiration of expanded unemployment benefits at the end of this month, present significant risk to the recovery in the mortgage market.
Nonfarm payrolls jumped by 4.8 million in June and the unemployment rate fell to 11.1% as the U.S. continued its reopening from the coronavirus pandemic, the Labor Department said Thursday.
Economists surveyed by Dow Jones had been expecting a 2.9 million increase and a jobless rate of 12.4%. The report was released a day earlier than usual due to the July Fourth U.S. holiday.
The numbers capture the move by all 50 states to get activity moving again after the virus seized up much of the U.S., particularly service-related industries.
However, because the government survey comes from the middle of the month, it does not account for the suspension or rollbacks in regions hit by a resurgence in coronavirus cases.
Leisure and hospitality again accounted for the biggest jump, as the sector saw a 2.1 million gain, accounting for about 40% of the total growth.
Another big contributor to the decline of the jobless rate was a plunge in those on temporary layoff. That total fell by 4.8 million in June to 10.6 million after a decrease of 2.7 million in May. The short-term jobless level fell by 1 million to 2.8 million.
The labor force participation level saw a sharp bump, rising to 61.5%, which brings it to 1.9 percentage points below its February level, a month before the coronavirus pandemic shut down much of the U.S. economy.
Jobs were equally balanced at 2.4 million apiece for full- and part-time workers.
The headline unemployment rate was understated sightly due to counting errors at the Bureau of Labor Statistics. Workers who still have jobs but have not been working are being counted as employed and even though they are supposed to be considered unemployed under BLS rules.
However, the BLS said that discrepancy “declined considerably” in June, making the actual unemployment rate only about 1 percentage point higher than the reported level.
An alternative measure of unemployment that includes discouraged workers and the underemployed fell to 18% from 21.2%.
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The Federal Reserve on Wednesday released the minutes from its June 9-10 meeting, during which it held interest rates steady and had an in-depth discussion about capping bond yields and strengthening its guidance about where policy will be set in the future.
Central bankers on the Federal Open Market Committee voted to hold their benchmark short-term borrowing rate in a range of 0%-0.25%. That’s where the Fed took the rate in mid-March as it sought to provide support for an economy reeling from the coronavirus.
In addition to the rate move, the committee also released its expectations for various data points. The median GDP projection for 2020 was a contraction of 6.5%, followed by a 5% increase in 2021 and 3.5% the following year.
“Participants commented that there remained an extraordinary amount of uncertainty and considerable risks to the economic outlook,” the minutes stated.
Despite the comparatively bright outlook for 2020, officials noted that the fiscal help Congress provided for households, businesses and state and local govenrnments “might prove to be insufficient.”
With near-zero rates unlikely to budge as the U.S. remains mired in recession, Fed watchers were looking for nuance from the minutes release. Among the items on the market’s radar will be indications of bond yield controls and enhanced forward guidance about what it will take for the central bank to move from its ultra-accommodative policy stance.
Members at the meeting indicate that they would prefer future policy moves tied to inflation, while just “a couple” said they would rather unemployment be the guide.
In addition to the talk of yield curve control and forward guidance, members also discussed the impact of asset purchases, which the Fed has stepped up this year. Officials noted that “constraints” under the current environment are making the purchases less effective than they were in the wake of the financial crisis in 2008.
In speeches since the meeting, Fed Chairman Jerome Powell has been cautious on the economy, saying the outlook is highly uncertain amid a recent surge in coronavirus cases. During that time, the Fed has started up two more lending programs, one to buy corporate bonds and the other to provide funding to small- and medium-sized businesses.
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More than half of U.S. manufacturers reported better-than-expected expansion in June, the first time that has happened since the coronavirus pandemic locked down the domestic economy.
The Institute for Supply Manufacturing survey showed a reading of 52.6, a percentage count of firms that said their businesses are growing. That’s up from May’s 43.1 and the 41.5 trough in April that came a month after shelter-in-place orders took much of the nation’s productive capacity offline.
Economists surveyed by Dow Jones had been looking for a 49.5 reading.
“As predicted, the growth cycle has returned after three straight months of COVID-19 disruptions,” said Timothy R. Fiore, ISM chair. “Demand, consumption and inputs are reaching parity and are positioned for a demand-driven expansion cycle as we enter the second half of the year.”
Only five of the 18 industries surveyed reported contraction for the month. Expansion was best among textile mills, wood products and furniture and related products.
Employment jumped to 42.1 from 32.1 in May, while production surged 24.1 points to 57.3. New orders rose 24.6 points to 56.4 and prices increased from 40.8 to 51.3.
Of the sub-indices, only supplier deliveries showed a monthly decline, dropping 11.1 points to 56.9. Exports and imports both posted gains though they remained below 50.
The report comes as all 50 states proceed into various phases of reopening. Some hotspots, particularly in the South and West, either have had to halt or curtail some activities in the face of a resurgence in the virus.
Private payrolls up 2.37 million in June; May revised up to 3.065 million gain from 2.76 million loss, ADP says
A waitress wearing a mask helps customers at Cafe Luxembourg’s outdoor seating as the city moves into Phase 2 of re-opening following restrictions imposed to curb the coronavirus pandemic on June 22, 2020 in New York City.
Alexi Rosenfeld | Getty Images
Companies in June continued to bring workers back from their pandemic furlough as the national economy slowly came back to life.
Private payrolls grew by 2.369 million for the month, a bit lower than the 2.5 million expectation from economists surveyed by Dow Jones, according to a report Wednesday from ADP and Moody’s Analytics.
The total actually represented a decline from the previous month, which saw a dramatic upward revision to 3.065 million. ADP initially said May saw a loss of 2.76 million. The firm did not immediately explain the massive shift.
For June, hiring was especially strong in the pivotal leisure and hospitality industry, which took the biggest hit as measures aimed at curbing the coronavirus spread meant shutting down most bars and restaurants across the country. The sector added 961,000, by far the biggest gain in any industry.
“Small business hiring picked up in the month of June,” said Ahu Yildirmaz, vice president and co-head of
the ADP Research Institute. “As the economy slowly continues to recover, we are seeing a significant rebound in industries that once experienced the greatest job losses.”
In addition to the big gains in hospitality, construction — another hard-hit industry — added 394,000 and manufacturing rose by 88,000. The goods sector in total saw a net gain of 457,000 positions.
On the services side, which grew by 1.912 million, other big gainers were trade, transportation and utilities (288,000), education and health services (283,000), and the “other services” category (215,000). Professional and businesses services added 151,000 and financial activities, which includes Wall Street jobs, was up 65,000.
Small businesses added 937,000 to lead industries by size. Companies with 500 or more workers were up 873,000 while medium-sized firms added 559,000.
The ADP count comes the day before the Labor Department releases its official nonfarm payrolls count for June. Economists are looking for a gain of 2.9 million after May’s 2.5 million jump, a number that contrasted sharply with the ADP count and shattered Wall Street estimates of an 8 million job loss.
The volatile numbers point up how difficult estimating the jobs situation is amid an economy struggling to get back to normal following the coronavirus-inducted shutdown. The national unemployment rate was a 50-year low 3.5% prior to the shutdown and is now 13.3%.
Even as jobs seem to be coming back, states are still trying to catch up with claims for unemployment insurance. That weekly number also comes out Thursday and is expected to indicate another 1.38 million new claims even as jobs on net are brought back. The discrepancy is part a backlog at the state level and possible counting errors under a special program targeted at pandemic-related claims, according to a Bloomberg News report Wednesday.
Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin are testifying Tuesday before the House Financial Services Committee. The topic will be both agencies’ response to the coronavirus pandemic.
Since mid-March, the Fed and Treasury have introduced a bevy of joint programs aimed at lending money where it is needed. The most recent launches are the Main Street Lending Program aimed at companies with fewer than 15,000 employees, and credit facilities aimed at buying corporate bonds.
Powell’s prepared remarks for the hearing indicate a commitment to keep the programs going to whatever extent necessary. The central bank chief also expressed concern about the “extraordinarily uncertain” outlook as the path of the coronavirus remains unclear.
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Federal Reserve Chair Jerome Powell holds a news conference following the Federal Reserve’s two-day Federal Open Market Committee Meeting in Washington, July 31, 2019.
Sarah Silbiger | Reuters
Federal Reserve Chairman Jerome Powell said big questions remain over the outlook for the economy, particularly in light of ongoing efforts to contain the coronavirus pandemic.
In remarks he will deliver Tuesday to the House Financial Services Committee, the central bank leader turned up concerns he had expressed earlier this month about growth as the U.S. remains mired ina recession that began in February.
“Output and employment remain far below their pre-pandemic levels. The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” Powell said.
“A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities,” he added. “The path forward will also depend on the policy actions taken at all levels of government to provide relief and to support the recovery for as long as needed.”
His remarks come amid a national spike in coronavirus cases rooted in states that have more aggressively relaxed restrictions implemented to contain the pandemic.
Powell stressed the importance of building on recent momentum, which he said will be predicated on the path of the virus.
“Many businesses are opening their doors, hiring is picking up, and spending is increasing. Employment moved higher, and consumer spending rebounded strongly in May,” he said. “We have entered an important new phase and have done so sooner than expected. While this bounceback in economic activity is welcome, it also presents new challenges — notably, the need to keep the virus in check.”
In response to the pandemic, the Fed has implemented a variety of programs aimed at keeping markets functioning and directly lending where it is needed.
The Fed also has cut its benchmark short-term lending rate to near zero, where Powell pledged to keep it until the economy recovers.
“In March, we lowered our policy interest rate to near zero, and we expect to maintain interest rates at this level until we are confident that the economy has weathered recent events and is on track to achieve our maximum-employment and price-stability goals,” he said. “We will closely monitor developments and are prepared to adjust our plans as appropriate to support our goals.”
Pending sale realtor sign
Daniel Acker | Bloomberg | Getty Images
Pending home sales spiked a stunning 44.3% in May compared with April, according to the National Association of Realtors.
That is the largest one-month jump in the history of the survey, which dates back to 2001. It beat expectations of a 15% gain. Sales were still 5.1% lower compared with May 2019, however.
Pending sales measure signed contracts on existing homes, so it shows that buyers were out shopping during the month of May. Sales had fallen 22% for the month in April, as the economy shut down to slow the spread of the coronavirus.
“This has been a spectacular recovery for contract signings, and goes to show the resiliency of American consumers and their evergreen desire for homeownership,” said Lawrence Yun, NAR’s chief economist. “This bounce back also speaks to how the housing sector could lead the way for a broader economic recovery.”
The market, however, still needs more supply, Yun noted. “Still, more home construction is needed to counter the persistent underproduction of homes over the past decade.”
The supply of existing homes for sale at the end of May was nearly 19% lower annually, according to the NAR. Single-family housing starts in May were not as strong as expected, although building permits, a measure of future construction, did gain some steam.
The supply of homes is still extremely low, but is improving in some markets. Active listings were up by more than 10% for the month in San Francisco, California, Denver and Colorado Springs, as well as Honolulu.
Buyers came back to the market despite restrictions on open houses in many states. Real estate agents are offering virtual tours as well as individual tours of empty homes, where buyers can open a lock box and tour the homes themselves. Some buyers are signing contracts on homes they’ve never even entered physically.
Rock-bottom mortgage rates are also helping buyers in a market that remains pricey due to high demand. The average rate on the 30-year fixed mortgage started May around 3.20%, according to Mortgage News Daily. By the start of June it was falling below 3%.
Sales of newly built homes, which are also measured by signed contracts, jumped nearly 17% in May, compared with April, and were 13% higher than May 2019, according to the U.S. Census. Builders have been seeing strong demand from buyers looking to leave densely populated urban areas. They are also benefiting from the shortage of existing homes for sale.
While the recovery was swift in May, the future is not exactly set, especially given the latest spikes in cases of Covid-19.
“Emerging virus hot spots in the South and West could derail the improving trend,” said Danielle Hale, chief economist for realtor.com. “For now, demand remains resilient, but we’re watching the new listings trend as it’s a good indicator of what’s ahead for home sales.”
Regionally, pending home sales in the Northeast rose 44.4% for the month but were down 33.2% from a year ago. In the Midwest, sales rose 37.2% monthly and were down 1.4%annually.
Pending home sales in the South increased 43.3% month-to-month and were up 1.9% from May 2019. In the West sales jumped 56.2% monthly and were 2.5% lower annually.
Jobless claims totaled 1.48 million last week as unemployment related to the coronavirus pandemic remained stubbornly high, though those receiving benefits fell below 20 million for the first time in two months.
Economists surveyed by Dow Jones had been expecting 1.35 million claims.
While the weekly numbers remained high and were worse than expectations for the second straight week, the total of those receiving benefits continued to fall. Total recipients, or continuing claims, fell by 767,000 to 19.52 million.
There also were 728, 120 initial claims under the Pandemic Unemployment Assistance program.
The most recent number marked the 14th straight week that filings remained above 1 million, a total first eclipsed for the week ended March 21. That was shortly after the World Health Organization declared the pandemic and much of the U.S. economy went into lockdown.
Claims had never been above a million prior to that. The coronavirus-era record is just shy of 6.9 million, hit in late March.
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