By Catherine Mesick
There are still many unknowns about COVID-19, but with that in mind, NAR Chief Economist Lawrence Yun is cautiously optimistic about where the economy is heading, and he also sees positive indicators in the residential real estate market.
WASHINGTON – First a caveat: There are still many unknowns about COVID-19 and what might happen next. But with that in mind, NAR Chief Economist Lawrence Yun sounded cautiously optimistic about where the economy is heading and positive indicators in the residential real estate market.
Yun predicted that steady and even rising home prices could point toward healthy home sales numbers once the economy reopens, and he saw signs that jobs could also rebound as stay-at-home orders ease.
Despite a decline in GDP, consumer spending and business spending in the first quarter of 2020, Yun said that residential investment – including home building, home sales, and remodeling – was actually up 21% during the first three months. He said that’s an indication, of how strong the housing market was before the pandemic hit.
Yun’s also encouraged by the fact that personal income was up by 2% and personal savings jumped a remarkable 152% related to curtailed household spending as the pandemic spread.
Yun hesitated to gauge the mindset of savers. “Are they waiting for the economy to reopen?” he said. “Or is it simply pessimism? There is certainly more money available.”
While grocery-store spending went up in March as spending at restaurants declined, Yun said that balance seemed to be changing a bit, with restaurant spending slightly improved over the last few weeks – a decline of just 60% to 70% year-to-year as some restaurants found ways to continue serving customers by engaging in social distancing and offering takeout service.
And while clothing stores, sporting and hobby stores, and department stores all saw steep declines in consumer retail spending over the same period a year ago, building materials and gardening spending actually increased by 10.4%, a hopeful indicator.
“People are upgrading their homes,” Yun said. “When the market reopens, that housing will go up in value. People are remodeling, working on lawn care. All things you do to sell a home.”
As grim as the unemployment numbers have been, Yun was encouraged by recent data. As of May 2, a reported 26 million people were jobless, in contrast to the high of 33 million who filed claims earlier in the lockdown. Yun inferred from the numbers that some people received unemployment checks for a few weeks and then got back to work, possibly in jobs in high-demand essential fields. He also said that it was important to watch for trends like these as a harbinger of improvement.
“Even in good years, people file (for unemployment),” he said. “We are looking for a flattening of the curve. When 1 million jobs are created in a week and less than 1 million file for unemployment, we will know the economy is turning for the better.”
Yun also said that the biggest job losses in April were found in leisure and hospitality (7.6 million) and in education and health (2.5 million). However, he saw potential for the latter category to rebound quickly once the economy reopens.
“I expect [education and health] to turn positive. People will need daycare. Hip replacement, knee surgery will be done again. These loses could be temporary.”
Home prices and sales
In addition to positive prognostications on the job front, Yun saw reason to be optimistic on the potential for home sales once the economy picks up steam. Of particular note were home prices, which he said were strong.
“There is no meaningful downward trend,” he said. “If anything, they appear to be rising.”
Yun pointed to the current housing inventory shortage as the source of stable prices, and he predicted that the shortage could grow even more severe since that the usual spring increase in listings didn’t occur this year. He suggested that sellers will be ready to list once the economy reopens. He used Georgia as an example since it was one of the first states to start to reopen.
“Listings are popping out” in Georgia, Yun said, “and buyers are quickly grabbing homes.”
He added further that healthy home sales are possible even if the job market is uncertain. “Even in high unemployment times,” Yun said, “60 to 70% have employment. And we have record-low mortgage rates. The situation could be good.”
Source: National Association of Realtors® (NAR)
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