The economy is “back in growth mode,” according to Zonda chief economist Ali Wolf; while January’s 49,000-job gain is not terribly high, it presents a return to positive growth after December’s job losses. Total employment is still down 10 million jobs from its previous high in February 2020. “The total numbers haven’t budged that much,” Wolf says, “But we know and are obviously enthusiastic about what the rest of this year starts to look like.” Approximately 4 million of these jobs lost were in leisure and hospitality, though Wolf emphasizes the losses are spread across all sectors.
Approximately 50% of the jobs lost are concentrated in households with incomes under $50,000. About one-third are concentrated in income levels between $50,000 and $99,999, and one-quarter are in income levels above $100,000.
The national implied unemployment rate stands at 6.3%. Las Vegas has the highest implied unemployment rate out of the major metros at 10.6%, followed by Detroit at 10.2%. Salt Lake City has the lowest at 3.8%, followed by Indianapolis at 4.3%. Las Vegas has had the sharpest drop in high-income payrolls at -9%, while Austin, Texas, has had the strongest growth at 6%.
The $600 individual stimulus corresponds with an 8% YOY growth in retail sales, demonstrating the impact of the stimulus, according to Wolf. However, Wolf and Zonda senior managing principal Tim Sullivan agree that the $1.9 trillion package in progress may be more than the economy needs, based on the difference between the stimulus packages and the real “output gap” in the economic system. “If you over-juice the economy,” Wolf says, “you have reaction from investors, you have growth that exceeds potential.” She anticipates this would have the strongest impact on sectors that are “interest rate sensitive.”
Home Sales by Market
New-home sales remain up by 28% YOY. According to Wolf, many of the market’s issues actually stem from its strength—new-home orders, for instance, are expected to fall based on inventory issues. She anticipates some “strange” numbers, including drops, as the YOY metric passes over months in the summer when sales were hot in 2020.
Jacksonville, Florida, remains the strongest large market by new-home pending sales at 48% YOY, followed by Austin and Raleigh, North Carolina. Naples, Florida, is the strongest small metro, at just over 50% YOY growth in pending home sales.
Drivers of Housing Strength
Of the eight main buyer groups, Wolf notes that seven are currently highly active, with foreign buyers as the only group not fully engaged. First-time buyers, move-up buyers, luxury buyers, retirees, investors, second-home buyers, and relocation buyers share a lot of the same reasons for choosing to buy a home—including COVID-related lifestyle changes, rising prices, low interest rates, greater savings, or simply a fear of missing out. In Zonda’s survey of home builders, the majority of respondents reported that first-time and move-up home buyers were their most active groups for sales and traffic, at 61% and 76%, respectively.
Among the common drivers is an increase in savings and, in turn, greater capacity to afford a larger down payment. This can help lower their mortgage payments, saving buyers thousands in the long haul.
According to CoreLogic, homeowners gained an average of $17,000 in equity on a year-over-year basis in January. The highest numbers are strongly located in Western states, with average equity gains of over $20,000. However, Wolf attributes some states’ rise in equity, including Tennessee’s, to Western transplants moving in and buying homes.
When asked if 2020 and early 2021’s housing demand is simply pulling demand forward from later years, Wolf cites a survey of 2,500 home buyers by Newland Communities, in which 28% say they were motivated to buy a home sooner due to COVID-19 in particular. Of that number, more than half are between 25 and 44 years old, and are largely couples with younger children.
Despite positive indicators, Wolf does caution that the 10-year Treasury rate is presently at its highest level in a year—1.4%, triple the rate from one year ago. “Our forecast is not that interest rates are going to skyrocket. Our forecast is 3.1% to 3.2% by the end of this year,” Wolf says. From 2.9%, this could mean a difference of thousands of dollars in the price of a home an individual buyer can afford.
Real-Time Housing Stats
While the buyers “keep coming,” according to Sullivan, inventory remains very low, and price appreciation has been incredible. In response to price appreciation, some builders have been capping their home sales; in Zonda’s monthly builder survey, 52% of builders reported taking only a specific number of contract sales per month, up from 35% in November.
Eleven percent of builders reported an increase in cancellations month over month—and, in this environment, a cancellation simply means a unit can be repriced. Sullivan attributes these cancellations to buyers who are uncertain about their financial standing, or pull out due to rising prices. Ninety-six percent reported raising base prices in mid-February compared with January, the highest rate in seven months.
When asked how much they had raised base prices, 37% reported raising prices by $5,000, while one-fifth said they had raised prices by more than $10,000.
At the same time, 47% reported issues with achieving high enough appraisal values. In terms of ongoing obstacles, 55% of builders reported ongoing issues with government services, 46% with labor shortages, 46% with land disruptions, and 78% with supply disruptions—up from 65% just one month ago.
The remodeling sector has also emerged as a source of competition for builders, both in terms of customer share and in terms of building supply. Remodeling and replacement spending in home improvement rose by 19% in 2020, or $27 billion in revenue. Pro dealers saw only a $0.5 billion increase, owing to a greater focus on new construction.
Lot supply has plummeted in many major new-home markets as acquisitions rise and development cannot keep pace. In the face of this, 55% of builders reported that they have expanded their geographic reach into local submarkets, and 27% have expanded into additional larger markets. Only 20% are not expanding their reach.
Of the industry’s price buckets, contract volume is strongest in the $250,000 to $500,000 price range, and sales volume is strongest for homes between 1,500 and 2,500 square feet.
After last week’s winter storm in Texas, Zonda asked the state’s builders whether they anticipated any of a number of setbacks due to inclement weather. More than half—56%—cited impacts on supply chains and schedules, and 51% cited impacts on lot development and delivery.
The next COVID-19 Housing Outlook will take place on Wednesday, March 24, at 2 PM EST / 11 AM PST. Click here to register.