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 downturn has been defined by a few major trends. Historic job losses in March and April. Unprecedented fiscal stimulus. A massive rally in the stock market. Millions of re-hirings through the summer.

But no trend has been more surprising as the booming U.S. housing market.

New, pending, and existing home sales have all surged through the summer. Mortgage applications have been on fire.

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

Not during the the 1990s expansion, the housing bubble of the 2000s, or the 2010s economic expansion that eventually grew to the longest on record were homebuilders as bullish on their prospects as they are today.

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

“The suburban shift for home building is keeping builders busy, supported on the demand side by low interest rates,” said NAHB chief economist Robert Dietz. “In another sign of this growing trend, builders in other parts of the country have reported receiving calls from customers in high-density markets asking about relocating.”

In response to financial market dislocations from fears over the economic fallout of the pandemic, the Federal Reserve cut interest rates to 0% and has pledged to keep policy accommodative for years to come. Low interest rates help mortgage borrowers and lenders, greasing the gears of the housing market.

Additionally, many of those hit hardest by layoffs during the pandemic were at the lower end of the wage scale — restaurants, bars, hotels, and any travel-related service have been hit hardest — while white collar workers told to work at home instead of come into the office have so far fared better.

This divergence in the labor market has been captured in wage growth data, with wages rising more than 4.5% over last year during the last few months as those earning less dropped out of the workforce while higher earners remained employed. As Federal Reserve Chair Jerome Powell said Wednesday, “The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been hardest hit.”

And so this dynamic has left a still-employed, higher-earning white collar workers setting up home offices or looking for a new home base altogether. With this surge in demand coming right into a housing market that had been supply-constrained for years.