The surprising economic trend that defines this recession: Morning Brief


Thursday, September 17, 2020

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The housing market is booming.

According to the National Bureau of Economic Research, the current recession began in February.

And this economic slowdown has been defined by a few major trends. Historic job losses in March and April. An unprecedented fiscal stimulus. A massive rally in the stock market. Millions of rehires throughout the summer.

But no trend has been more surprising than the boom in the US real estate market.

Sales of new, pending and existing homes all surged over the summer. Mortgage applications are on fire.

And on Wednesday, the September reading on Home Builders’ Sentiment from the National Association of Home Builders showed that builders have never felt better about the housing market.

Not during the boom of the 1990s, the real estate bubble of the 2000s, or the economic boom of the 2010s that finally reached the longest on record, home builders weren’t as optimistic about their prospects as they were. they are today.

Instead, it was a global pandemic that laid the groundwork for a surprise real estate boom.

“The shift from suburb to house building is keeping builders busy, supported on the demand side by low interest rates,” said NAHB chief economist Robert Dietz. “Another sign of this growing trend, builders in other parts of the country have reported receiving calls from customers in high density markets asking them to relocate. “

In response to financial market dislocations over fears about the economic fallout from the pandemic, the Federal Reserve reduced interest rates to 0% and pledged to maintain an accommodative policy for years to come. Low interest rates help mortgage borrowers and lenders by greasing the wheels of the housing market.

Additionally, many of those hit hardest by layoffs during the pandemic were at the bottom of the pay scale – restaurants, bars, hotels and any travel-related services hit the hardest. – while white-collar workers said to work from home instead of coming to the office have fared better so far.

This labor market divergence has been captured in data on wage growth, with wages rising more than 4.5% from a year ago in recent months as those earning less have left. the working population while the highest remained employed. As Federal Reserve Chairman Jerome Powell said on Wednesday, “The economic downturn has not affected all Americans alike, and those least able to shoulder the burden have been the hardest. affected “.

And so, this dynamic has left white-collar workers still active and better paid to set up home offices or seek a new home base. With this increase in demand going directly into a housing market that had been supply constrained for years.

In a note to clients released Wednesday, Evercore ISI analysts led by Stephen Kim called it a “golden age” for the US real estate market.

“In our view, the roots of this demand strength run deep, fed by a reservoir of millennial households that are now popping up, intertwined and upward trends, accommodating housing policy and record mortgage rates,” Kim writes. . “[Amidst] rising fear and insecurity, the instinct to retreat into the sanctuary of his home is relentless. As we stand on the threshold of a new cycle, examining years of pent-up demographic trends, unprecedented purchasing power, generous government support, and limited supply, the industry’s forecast is exceptionally bright … “

And so it looks like a recession and the scariest crisis in a generation has served to reset the housing outlook in the United States.

A surprising result, indeed.

But seen differently, this housing – and particularly suburban single-family homes – would benefit during a crisis that serves to accelerate the most notable economic trends of the 2010s.

Because the success of the housing market is as much about inequality as it is about low rates or limited supply.

Through Myles Udland, journalist and co-presenter of The final round. Follow him on @MylesUdland

What to watch today


  • 8:30 a.m. ET: Building permit, August (1.52 million expected, 1.483 million in July)

  • 8:30 a.m. ET: Starts, August (1.475 million expected, 1.496 million in July)

  • 8:30 a.m. ET: Philadelphia Fed Trade Outlook Index, September (15.0 expected, 17.2 in August);

  • 8:30 a.m. ET: Initial jobless claims, week ended September 12 (850,000 expected, 884,000 the previous week)

  • 8:30 a.m. ET: Continuing claims, week ended September 5 (13,000 million expected, 13,385 million the previous week)

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