According to Ali Wolf, chief economist at Zonda, labor is the “the missing piece” in the housing market. In this week’s COVID-19 Update Webinar, labor stands as a focal weak point next to the strengths of low mortgage rates, favorable demographics, thriving stock market, home equity, and working from home.
Based on total nonfarm payroll numbers, the economy is 56% recovered—up only 245,000 jobs from the previous month, still rising but ever more slowly. “The economy does continue to grow, just at a slower rate,” says Wolf. At a rate of 245,000 jobs per month, the economy would need 3.3 more years to fully recover. At October’s rate—610,000 per month—the economy would need 1.4 years to recover. By the third quarter of 2021, Zonda anticipates that the nation’s real gross GDP will be back to the levels seen in Q4 2019.
Wolf attributes the inequities between the economy and the labor market to the K-shaped recovery, which has benefited investors, improved home equity, and left millions of Americans unemployed. While the headline unemployment rate has fallen to 6.7%, a marked improvement over earlier in the year, this does not include the 4.1 million individuals who have left the labor force. If that number is included, the unemployment rate trends closer to 9%. Wolf expects this trend to reverse in the “vaccine economy,” at least in the case of women who have had to quit their jobs due to child care.
Based on employment, Indianapolis is considered the “most recovered” of the major metro markets, with 79% of jobs recovered and an unemployment rate of 4.9%. By comparison, Orlando, Florida, has only recovered 28% of jobs and has an unemployment rate of 7.9%. Based on a survey of 30 economists and analysts by the National Association of Realtors in early December, Phoenix; Austin, Texas; Charlotte, North Carolina; and Atlanta are the top prospective markets of interest for 2021.
Economic Facts and Figures
As in the majority of the pandemic period, the overall performance of the economy depends on the sector. As of now, only the concert and conference sectors remain in an L-shaped recovery; in-person retail, air traffic, restaurants, hotels, and sporting events are in a “swoosh” formation, recovering slowly after a steep drop. Online retail and housing, on the other hand, have entered a “super V” period of strong ongoing post-recessionary growth.
The personal savings rate is currently 13.6%, down from a peak of almost 35% but higher than the 61-year average of 8.8%. Personal income is up 5.5%, still owed in part to government transfers.
TSA activity is off 65% YOY, and seated dining activity varies widely from location to location, from -100% YOY in Los Angeles (owing to new lockdown orders) to Naples, Florida, where seated dining activity is down -25% YOY. As the vaccine enters the population, Wolf says the service sector, which covers many of the hardest-hit industries, anticipates a “revival” as services become safer to receive overall.
National retail growth is led by sales in furniture and furnishings, which have grown 20.1% at the national level. Phoenix; Sacramento, California; Orlando; and Austin lead the nation in furniture and furnishings growth—up 25% YOY—mirroring the strong housing markets in each area.
Given the question of whether the vaccine may create an environment where consumers spend less on housing, given the resurgence of the service sector, Wolf still expects housing market growth to persist through 2021. “We just don’t think 40% to 50% additional growth off the levels we’ve seen this year in 2021.”
Real-Time Housing Stats
The gulf between the national new and existing home price has narrowed this year, with the national existing home price hovering near $320,000 and the new-home price near $330,000. Despite this price increase, record low mortgage rates have made a large difference in mortgage payments in many markets.
In Zonda’s monthly builder survey, 45% reported no change or flat gross contract sales to date compared with November, while 22% reported an increase and 31% reported a decrease. Eight percent of builders reported a rise in cancellations month over month, while 3% reported they have increased incentives and 81% reported they have increased prices.
At the national level, over 60% of new-home projects have seen price increases in the last month, compared with about 40% last year. A growing share of these price increases are at a lower price point—between $2,000 and $3,000.
According to Tim Sullivan, senior managing principal at Zonda, the housing market is driving growth close to mid-2000s levels. A rise in COVID cases has had little to no impact on home sales, and consistently high demand is taking its toll on the industry, creating a “ferociously” competitive land market across the country. The sales process has shifted to create a stronger focus on customer experience, particularly in virtual spaces.
Permit issuance is positive in most top markets, with San Francisco seeing the highest YOY growth in permit issuance at 73%, followed by Columbus, Ohio, at 62%. Sullivan notes that permits in Dallas are up 43% YOY, back to 2005 levels, with “a lot more people and a lot more jobs there” than there were 15 years ago.
Appraisals remain among the market’s biggest concerns, with 42% of builders reporting that they cannot achieve high enough appraisal values. Fifty-three percent reported that they are experiencing delays related to government services, 40% reported labor shortages, and 65% reported supply disruptions. Sales-to-start is slowing, with 75% of respondents acknowledging the process of “buying dirt” is taking longer than usual—weeks or months, for 36% of builders.
Lot supply has changed in a big way in many major markets, with a large number indexed as slightly or significantly undersupplied given the rise in demand. In Phoenix, this has led to new-home development in markets previously considered “untouchable,” such as Apache Junction. While 39% of respondents are concerned about lot supply in 2021, Sullivan notes that builders have expressed concerns about 2022 in one-on-one conversations.
Of the changes that have come about due to the COVID-19 pandemic, Zonda expects that virtual education, full-time work from home, and women leaving the workforce will not persist in a post-vaccine world. City life and gyms are expected to return, along with business travel, though not to the same levels as pre-COVID. Suburban life is expected to remain popular, and part-time work from home, single-family rental and build-to-rent assets, and strong Southern new-home markets are expected to persist long term.
The next COVID-19 Update Webinar will take place Jan. 27, 2021, at 11 AM PST / 2 PM EST. Click here to register.
