NAHB Expects 10% Unemployment Rate at Year-End

NAHB Chief Economist Robert Dietz provides the latest weekly analysis on the effects of the COVID-19 pandemic:

Incoming macroeconomic data detail the economic damage the shutdown of the U.S. economy is having on households and businesses. Moves to gradually open up parts of the economy are responsible for a recent lifting of economic spirits and gains for the stock market itself. While risks remain — particularly of a W-shaped recovery that features recurring regional outbreaks of the virus — once markets get past the April and May data an improved outlook should be on the horizon.

Looking back, however, first quarter GDP growth was -4.8%, the first decline since the first quarter of 2014 and the worst performance since the start of 2009. The second quarter will be worse. Our revised forecast is that the rate of decline will accelerate to -20% to -30%; other forecasters place the quarter at up to a -40% decline. A bright spot in the first quarter GDP report was housing. Home building increased 21%, the best performance since the end of 2012. This is another sign of the potential of home construction to lead an economic rebound.

The economy continues to experience historic and ongoing job losses and this has had a significant impact on housing demand. More than 3 million additional initial jobless claims were filed this week, placing the six-week total at 30 million. By way of contrast, there were only 23 million jobs created since the end of the Great Recession.

These 30 million claims include independent contractors and furloughs, so the impact on the unemployment rate is unclear. However, the April rate (reported on May 8) will be at least 12%. By the end of the year, NAHB expects the unemployment rate to be around 10%, which would be an improvement over the mid-year data, but unfortunately near the peak jobless rate of some recent recessions.

In housing news, the March and April data will continue to be weak. Pending resales declined almost 21% in March, reaching the lowest reading since 2011, according to data from the National Association of Realtors. For seniors housing, while recent stock market gains will improve the 55+ housing sector outlook in the future, the first quarter NAHB 55+ sentiment indicator declined 30 points to a level of 38. Any reading less than 50 points to negative market conditions.

As a broader measure of consumer behavior, the savings rate for individuals jumped to 13.1% in March, the highest level since the Great Recession. A high savings rate is bad for consumption growth in the economy and reflects consumer fears.

Backward-looking data are a reminder of the momentum housing markets had coming into 2020, and their potential for gains as an economic rebound takes hold. For example, home prices were up 4.2% year-over-year in February on an ongoing lack of inventory. And the homeownership rate increased to 65.3% in the first quarter, driven by gains for households under age 35.

Overall, the NAHB forecast calls for significant weakness during the second quarter, lingering challenges in the third, and a rebound taking hold in the final quarter of 2020. In the coming days, we will see the April unemployment rate, and we will be revising our macroeconomic forecast.

While some macro factors appear to be trending worse than expected a few weeks ago, some housing data are turning positive on a week-over-week basis. For example, mortgage purchase applications increased 12% this past week, reaching the highest level in a month, according to the Mortgage Bankers Association. Particularly positive was the fact that the states of New York, Washington and California showed gains after earlier virus-related weakness. This is a reminder that there remains pent-up housing demand, and ultimately, a need for additional home construction as the economy transitions into recovery mode.0