The Coronavirus has worsened this past week with both new cases and the number of deaths continuing to rise, and some of the economic data is beginning to catch up to the reality that has been playing out over the past few weeks. Critical economic indicators showed ongoing deterioration with new records for unemployment and economy in general and noticeable effects on California’s housing market in particular.
- Another Record for Unemployment Claims: Last week, new claims for unemployment insurance (UI) set a new record with 6.6 million new filings. Taken together with the previous week’s 3.3 million initial claims for UI, and nearly 10 million Americans have sought assistance associated with job losses in just 2 weeks. To put that into perspective, at the onset of the financial crisis, we experienced 37 million claims during all of 2008. Currently, we are at 25% of that level in just 2 weeks.
- Economists Project California’s Current Unemployment Rate at 16%: The California Economic Forecast has begun publishing weekly unemployment rate estimates for the nation and California. These estimates, which rely on data from a variety of sources including UI claims, google search traffic, and others, pegs the state’s current unemployment rate at 16%. That would mean that the unemployment in California is already 350 basis points higher than the peak of 12.4% during the Great Recession.
- Pending Home Sales Still Falling: Last week, most major regions in California saw the number of homes enter the escrow process fall by more than 10% from the week before except the Central Valley where pending sales fell 5.8%. Clearly the effects of shelter in place on consumer and business spending, coupled with the rising job losses have reduced the ability for Californians to move forward with a home purchase. This suggests that closed sales will likely remain depressed for the next 30-45 days as current pendings form the pipeline of closed sales in coming months.
- More Transactions Falling Out of Escrow: The number of California REALTORS® that have had a sale fall out of escrow rose last week with XX% reporting a lost transaction—an increase of XX% from last week. In addition, roughly 2/3 of California REALTORS® experienced delays in escrow with loan funding issues topping the list of reasons for delay followed by appraisal, inspection, and title recording.
- No Immediate Relief for Mortgage Servicers: Mortgage availability has deteriorated significantly in recent weeks as originators fret over demand for loans in the MBS market and servicers worry about the effects of forbearance on their cash reserves. Under the current rules, servicers are still required to remit payments to investors even when the borrowers are not making payments under forbearance. Despite efforts by the mortgage industry to address the issue, recent statements from the FHFA Commissioner suggest that relief for servicers in particular will not be forthcoming.
- Mortgage Applications Show Effects of Labor Market Impacts: New mortgage applications for home purchases in California declined by double-digit percentages last week as job losses mount. Overall, mortgage applications in California fell by nearly 50%–a marked deterioration from the previous week when new purchase applications just 16.5% from the week earlier.
- Flat Week New MLS Listings: Although pending sales continue to post declines, new listings added to the MLS were essentially flat last week from the previous week. Since the beginning of March, the number of new listings being added to the MLS each day has fallen by between 30-50% depending on the specific region. This suggests that the market will remain tight for the next 2 months at a minimum. However, C.A.R. will continue to monitor this indicator for signs that the market is stabilizing around this reduced level or whether additional declines are expected.
- Federal Government Seeks Additional Funding for Key Stimulus Programs: As part of the CARES Act, the federal government has agreed to provide forgivable loans for small businesses, including REALTORS®, in order to help stimulate the economy during the outbreak. To date, more than $70 billion has been awarded and President Trump has signaled to Congress that he will be seeking an additional $250 in fund for expanding the program to more small businesses.
- Financial Markets Enjoy Nascent Rebound: Despite rising economic impacts and record job losses, the financial markets have enjoyed a steady increase over the past week. No doubt encouraged by both the fiscal stimulus, which is beginning to be implemented as well as prospects for getting the outbreak under control with less infections and deaths that previously estimates, the Dow has risen from roughly 21,000 to closing at roughly 23,000 over the past two days and up significantly from the 18,000 observed during the 3rd week of March.
- Real Estate Business IS Still Getting Done: In C.A.R.’s latest weekly survey of California REALTORS®, more than 30% of respondents have had a sale close escrow since March 15th when the shelter in place rules went into effect. And, although roughly 30% have had a transaction fall out of escrow, most REALTORS® who were supposed to close escrow were able to do so. Many transactions are facing delays due to financing, appraisals, and notary/signatures amongst others, California’s market for residential real estate continues to function under unprecedented circumstances.
There have been some glimmers of hope over the past week including the financial market strength in recent days, the ongoing actions being taken by the federal government, as well as the fact that real estate business is still getting done. However, it is also clear that we have not reached the peak of this crisis and that the coming weeks will be our most challenging yet. Belts will remain tight over the next 6-10 weeks as we endeavor to flatten the curve so that we can begin the recovery process.