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Since last week’s COVID-19 Update webinar – a weekly Meyers Research series covering the COVID-19 pandemic and its effects on the economy as they unfold – jurisdictions have extended their stay-at-home orders or updated them with more concrete timelines toward reopening. New York City’s stay at home order is set to last through June, while Los Angeles County’s order has been extended until July, with restrictions gradually easing along the way depending on the state of testing and viral spread.

For those states that are beginning to reopen, spending data is “moving in the right direction”, according to Ali Wolf, chief economist at Meyers Research. While some countries have experienced an uptick in COVID-19 cases when restrictions were lifted, it is not yet certain whether a “global resurgence” will occur.

Approximately 7.9% of loans are in forbearance, up from 7.5% the previous week. By and large, renters are still able to pay their rents; According to NMHC data, 80.2% of renters had paid their rent by early May, compared to 81.7% during the same timeframe in 2019. Wolf attributes this to the stimulus checks and unemployment insurance available, but also notes that many renters are paying their rent with their credit cards, accumulating more debt.

A new, $3 trillion stimulus package is in the works, including funding for state and local governments, consumer stimulus, and a possible end to the cap on state and local income taxes. If passed, this would raise the cumulative deficit for 2020 from a projected $1 trillion at the start of the year to $6-8 trillion across all stimulus packages.

Out of a number of local home building operations interviewed by Meyers Research, 65% reported that they had not made any changes to staff as a result of COVID-19 as of May 11th. This is down from 72% as of the week of May 5th. Nineteen percent say they have had to lay off staff, while 5% have actually increased staff.

The most recent nonfarm payroll release, which covers data through April 18th, shows that the American economy has lost 20.5 million jobs since mid-March – a historic job loss magnitudes above the 700,000 jobs reported lost in the March nonfarm payroll release.

While the headline unemployment rate stands at 14.7% through April 18th, Wolf notes that by a number of other calculations – including those who have voluntarily backed out of the labor force – the ‘true’ unemployment rate could stand as high as 25%, higher than the Great Depression rate. While 80% of those unemployed in this data are furloughed, which would put the non-furloughed unemployment rate at 7% or 8%, Wolf has noted a rise in instances where workers previously furloughed have been laid off completely. “The truth is somewhere in the middle, maybe between a 15% and 17% unemployment rate,” she says.

Wolf also highlights that unemployment rates vary widely by race, gender, and education level. More women have lost their jobs than men, owing to the distribution of affected industries. One-fifth of workers without a high school degree are unemployed, compared to 8% with a bachelor’s degree or more.

Housing Trends

The rate of decline in the Mortgage Bankers’ Association’s Conventional Market Purchas Index is continuing to shrink this week, rising up to -11% YOY from a trough of almost -35% YOY a few weeks ago.

According to a NAR survey, sellers remain reluctant to reduce their prices to attract buyers, given the lack of inventory, and home buyers’ expectations appear to be adjusting to match. At the same time, very few buyers have made any change to their neighborhood preferences as a result of COVID-19, whether into the city or into the suburbs. (Wolf advises builders to keep an eye on the share of millennial employees working from home, which stood at 11% in January 2020.)

According to Meyers data, 23% of builders report that detached homes are now selling better than attached homes. Detached homes had a 3% faster sales pace than attached homes in January and February, which rose to 13% in March and April. While this aligns with surveys in which 38% of builders report that entry level and first-time buyers are most affected by financing falling through, Wolf does not want to discount a “well-executed, well-priced attached product.”

New listings have risen from a trough of -50% YOY to -37% YOY in early May. Wolf predicts that listings will continue to rise in the coming months, which will change the present supply and demand dynamics. Seventy-seven percent of realtors say they have sellers who are preparing to sell their homes as soon as stay-at home orders are over, while 50% are doing DIY projects in preparation to put their homes on the market.

Despite these trends toward recovery from April’s lows, Wolf advises builders to remember that today’s trends will not necessarily carry into the future, and that many unknowns still exist for the future, depending on the virus’s spread.

In conversations with Meyers-Metrostudy’s regional teams, a number of builders have reported very strong sales performance in May, while others are still slow. As in previous weeks, these performance metrics vary by region. Seventy-eight percent of builders have kept base prices flat week over week, down from 97% five weeks ago. Twenty-one percent have increased incentives week over week, and 14% have reported a rise in cancellations.

Tim Sullivan, senior managing principal at Meyers Research, reports that those incentives that exist “remain tight”, and that almost no California builders are putting incentives in their existing product.

Half of builders – 50% - report that net contract volume has risen either slightly or significantly over the past week, while 34% report no change. Spending on upgrades has softened, and 12% identify that buyers are coming in with upgrade options at $15,000 or less.

Capital Markets Snapshot and Built for Rent Opportunities

According to Meyers’s yearly study of equity investors in progress, over 80% of investors surveyed are targeting single family land development and single family built-to-rent development, among other types. Approximately 85% of investors expect underwriting standards to become more strict in 2020. Debt providers are targeting single family home building and land development, with entry level and first move-up as ideal segments.

Over the past two months – overlapping with the pandemic – share-price performance for two major rental home providers, Invitation Homes and American Homes 4 Rent, has largely outperformed the S&P 500 – showing that the market finds value in the single family rental space. Big capital sources, such as JPMorgan, are also moving into the rental home space as late.

“The big players are saying, when I think about risk, and the new world that we come out of COVID with, detached make a lot of sense and rent makes a lot of sense,” Sullivan says. He highlights two different product types in this space – platted lot subdivisions, more likely to have larger homes with family renters, and horizontal apartments, more likely to have smaller units and attract millennials and empty nesters.

The next COVID-19 Update Webinar will be on May 20th, 2020, at 2 PM EST / 11 AM PST.

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