While economic risks may surface related to stimulus volume, this is not expected to happen within the next 12 months, says Zonda chief economist Ali Wolf.
At one year and one week since the very first COVID-19 Update webinar, "the economy is coming back to life,” says Zonda chief economist Ali Wolf. A number of states have partially or fully reopened, and approximately 15% of the U.S. population is fully vaccinated.
This comes alongside an “unprecedented” level of policy support to the economy, including the $1.9 trillion stimulus package and the individual stimulus checks. Across all three stimulus packages, the federal government has pumped $5.7 trillion into the economy in one year’s time.
Wolf believes that as the virus recedes, economic risks may surface related to this stimulus volume in the long term. However, she does not expect this to occur any time within the next 12 months.
Anonymized card data available to the Federal Reserve Bank of Chicago shows approximately a 50% spend rate and a 50% save rate for the first round of stimulus checks. Higher-income individuals saved a larger share of the stimulus —65%—while lower-income individuals spent a larger share, 62%. This ratio has persisted through the second round of stimulus.
The economy is still in a “K-shape” recovery, with certain industries performing better than others. Sales in retail and grocery have risen 17.9% and 14.6%, respectively, year over year, while transportation and entertainment have fallen 38.5% and 54.6%, respectively. However, the jobs report shows a “start of a revitalization” for the bottom half of the K, with 355,000 jobs added in leisure and hospitality.
Wolf says millions of jobs could return to this sector over the course of April and May, and reduce the unemployment rates in gateway markets. The economic rebound is “nearly complete” in some markets, led by Salt Lake City; Jacksonville and Tampa, Florida; and Nashville, Tennessee.
New-home sales are up by 35% YOY as of February—considering both the change in sales rate, which ties in supply and demand issues, and the change in total new-home orders.
Jacksonville has the highest YOY change in the Zonda New Home Pending Sales Index for large metros at 80%, followed by Chicago and Indianapolis. However, Jacksonville's new-home orders are only up 32%, illustrating the impact of outsized demand and low supply.
Phoenix has the highest bottom tier sales rate by metro, meaning the highest concentration of homes sold in the bottom third of the new-home market’s price range. Las Vegas, Dallas, and Seattle also rank high on this list. Las Vegas has the highest middle tier sales rate, followed by Riverside/San Bernardino, California, and Denver, while Riverside/San Bernardino has the highest sales rate in the top tier, followed by Las Vegas and Sacramento, California.
While home prices and interest rates have risen steadily over the course of many months, the new-home affordability ratios for the major home markets remain higher now than they were in January 2020. At the same time, households are better able to save for a down payment, thanks both to the economic stimulus checks and student loan deferrals.
In San Antonio, the three stimulus checks combined ($3,200) would make up 70% of a 3.5% down payment on a median-priced new home. When asked if builders are “stealing” home sales from the future given the velocity of demand, Wolf says there is “no doubt” that the market has pulled demand forward, given the volume of millennials who are buying homes years earlier than they might have otherwise.
Over the last 10 months, according to LinkedIn economic data, Salt Lake City has had the strongest net new resident gain at 12.3%, followed by Jacksonville at 10.8% and Richmond, Virginia, and Sacramento tied at 6.1%. Boise, Idaho, has the highest share of out-of-metro searches, according to Redfin, followed by Chico, California.
According to Zonda senior managing principal Tim Sullivan, builders are now “pushing to the outskirts” to find new land to develop, led both by new geographic opportunities and work-from-home trends. Real estate agent commissions are falling, down to the 1.5% to 2% range, and builder teams have been “stretched thin” as some builders do not want to hire to match what might be temporary demand.
Sales are falling, largely by design. Of the builder respondents to Zonda’s latest survey, 89% reported that they have made some sort of adjustment to their sales strategy in order to buffer demand.
Only 8% reported an increase in cancellations month over month, while 98% of builders raised prices in mid-March compared with February. More than a quarter of respondents said they have increased base prices by over $10,000, and half reported that they are not achieving high enough appraisal values. Far and away, the greatest factor in raising base prices is lumber prices—70% of builders reported that this is the cause of their price increases.
This, among other factors, has pulled building cycles longer. Fifty-eight percent of builders still cited difficulty with government services, 44% reported issues with labor shortages, 85% reported supply disruptions, and 40% reported land disruptions.
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