Economic Update – Week of August 23, 2020

  • Existing home sales are booming thanks to historically low-interest rates and a low inventory of houses for sale
  • Initial jobless claims rose to 1.11 million, after falling below 1 million for the first time since the pandemic
  • There are currently 14.84 million people unemployed and looking for work
  • Moratoriums for evictions are going to be lifted soon  (September 2), unless new rules are passed soon
  • Don’t expect a foreclosure wave like the last recession, we are better off, have moratoriums and banks willing to allow forbearance

Existing Home Sales (National). Sales of existing homes soared 24.7% in July from June, according to the National Association of Realtors.  Representing one of the strongest monthly gains in the survey’s history, which goes back to 1968, and the highest sales pace since December 2006.  The increase in sales comes as supply falls and mortgage rates remain near historical lows.  The supply of existing homes plummeted 21.1% annually, with just 1.5 million homes available for sale at the end of July.  It’s the lowest July supply in the history of the inventory survey, which has been tracking single-family supply data since 1982.  That shortage drove the median price of a home sold in July up 8.5% annually to $304,100.  This is a record high price but also the highest price when adjusted for inflation.  Low-interest rates are also fueling home prices, as they give buyers more purchasing power.  

Jobless claims. Perhaps one of the best leading indicators of the economy is weekly jobless claims, which rose to 1.11 million after falling below a million for the first time during the Coronavirus in the previous week.  These claims potentially point to an increase in layoffs after a summer surge in the coronavirus epidemic.  Or, perhaps, the disruption in federal $600 unemployment benefits may also be influencing new U.S. jobless claims.  Whatever the reason is, unemployment is still extremely high by any historical measure.  Jobless claims are roughly five times higher now than they were pre-pandemic.  Keep in mind that pre-pandemic average jobless claims were ~200,000 per week and stood near a 50-year low.  Also “Continuing Claims” (people still receiving traditional jobless benefits), fell by a seasonally adjusted 636,000 in the week ended Aug. 8 to a new pandemic low of 14.84 million.  That means there are over 14,840,000 people unemployed and looking for work.

Moratoriums Lifted. California’s top justices voted overwhelmingly last Thursday to lift emergency rules meant to halt evictions and foreclosures during the COVID-19 pandemic, saying any extension of those moratoriums must be passed by the state’s lawmakers.  Meaning, unless there is a new law passed, most evictions and foreclosures could resume as soon as September 2.  There has been extensive discussions, for the best way to protect renters, landlords and homeowners but the bills fall apart on how to compensate landlords.  Most renters, at least in California are protected by a hodgepodge of local eviction protections, but those are set to expire too.  Should that happen, as many as 365,000 California households could be at risk of eviction, UCLA’s Luskin Institute reports.  In Los Angeles, for example, a county-wide moratorium is scheduled to be lifted on September 30. 

Foreclosures.  So we’re in a pandemic and recession, but we haven’s seen foreclosure like last time.  I often hear where are the foreclosures and warning signs.  Luckily that “wave of foreclosures” we keep hearing about, isnt happening.  Thankfully, research shows the number of foreclosures is expected to be much lower than what this country experienced during the last recession.  Why?  Mainly, because foreclosure moratoriums have been granted to borrowers with loans insured by Fannie Mae or Freddie Mac.  Second, many states have also granted foreclosure moratoriums (as well as eviction moratoriums) during the pandemic.  Third, over 4,208,000 homeowners negotiated forbearance agreements with their lenders.  Of that number, those still in active forbearance agreements have been leveling-off over the past month.  Borrowers have either started to pay their mortgages again, paid off their home loans, or never went delinquent on their payments in the first place.   The good new is for many homeowners there equity is growing, jobs are returning, and the economy is slowly recovering, so the perfect storm for a wave of foreclosures is not realistically in the housing market forecast.

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