In Review: Week of April 20th, 2020

More government stimulus is on the way, as Congress passed and President Trump signed into law the latest bill to help our struggling economy. Specifically, the bill includes more than $320 billion for the Paycheck Protection Program (PPP), which will help small businesses retain or rehire workers and will ultimately help the housing market. Funding for hospitals and testing was also included in the package.

This bill is especially timely, given that the latest Initial Jobless Claims showed that 4.4 million people filed for unemployment for the first time during the week ending April 18. This is a staggering number, as is the growing unemployment rate, which we breakdown in detail below.

Sales of new and existing homes also began to reflect the pandemic’s impact on the housing sector in March. Even with a strong beginning of the month, Existing Home Sales fell 8.5% while New Home Sales plummeted 15.4%. Orders for Durable Goods, which reflects new orders placed with domestic manufacturers for delivery of factory hard goods, also fell 14.4% in March, worse than expectations of an 11.7% decrease.

Finally, the Federal Housing Finance Agency released home appreciation figures for February, and while the data pre-dates the pandemic, there is a positive takeaway as noted below.

The Latest on Jobless Claims

Initial Jobless Claims once again reached into the millions, as 4.4 million people filed claims for the first time during the week ending April 18. This was down a million from the 5.2 million people who filed claims for the first time during the week ending April 11.

Let’s take a moment and look at what this means regarding the unemployment rate. There is a total of 164 million people in the labor force. Before the pandemic began, our unemployment rate was 3.5%, meaning that 5.6 million people were unemployed before the pandemic shutdowns were enacted.

In recent weeks, 26.5 million jobless claims have been filed. When we add that to the 5.6 million people who were unemployed before the pandemic, the total number of people unemployed is around 32 million. This equates to 20% unemployment given the number of people in the labor force.

However, we need to factor in the number of people coming back to work, possibly helped by the Paycheck Protection Program (PPP). When we look at continuing jobless claims from two weeks ago and add the new claims from the latest two weeks, the total number of jobless claims actually totals 25.6 million, not 26.5 million. This means almost 1 million people went back to work.

We estimate the unemployment rate to really be around 18.5% … maybe helped by the PPP a bit.

Home Sales Plunge

Existing Home Sales for March were down 8.5%, but according to the National Association of REALTORS®, sales during the first half of March were strong so the data does not reflect the full picture factoring in the pandemic. Also, closings in March are reflective of contracts that were signed in January and February, and buyer traffic has slowed a lot since then.

While it’s certainly anyone’s guess, projections are that sales could fall 30% to 40% over the next few months, and possibly be down 10% year over year depending on how long the economic shutdown lasts.

The median home price was reported at $280,600, up 8% year over year. Note this is not appreciation, as it’s the middle-priced home, meaning that half the homes sold above and half below this figure.

New Home Sales, which measures signed contracts on new homes, did not fare any better, plunging 15.4% from February to March. This was the largest monthly percentage decline since July 2013.

A Note on Home Appreciation

The Federal Housing Finance Agency released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. Home prices rose 0.7% in February and 5.7% year over year. Of course, this is old data, but it does show how strong the housing market was before the pandemic began. We should expect home prices to take a hit due to job losses and lack of demand, but the 5.7% annual appreciation does provide some cushion and may prevent gains from going negative.

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