Unemployment Remains Elevated While Low Inventory Presents a Challenge for Buyers
January 1, 2023
5 min read
The spike in COVID cases continues to impact businesses and employees around the country, as another 803,000 people filed for unemployment benefits for the first time during the week ending December 19. Meanwhile, sales of both new and existing homes fell from October to November as low inventory remains the biggest challenge for buyers.
The final estimate of third quarter Gross Domestic Product (GDP) came in at 33.4% on an annualized basis, which was slightly higher than the 33.1% expected. While this was a solid rise, remember that it follows a 31.4% drop in the second quarter. GDP would have to increase 50% to make back what was lost. And with the recent spike in COVID cases, fourth quarter GDP may not be as strong as was hoped.
Initial Jobless Claims Decline in Latest Week
Another 803,000 people filed for unemployment benefits for the first time during the week ending December 19, which was a decline of 89,000 from the previous week. Continuing Claims, which measures people who continue to receive benefits, also decreased by 170,000 to 5.3 million.
In addition, it's important to note that people can file for Pandemic Emergency Unemployment Compensation (PEUC) once their regular benefits expire, which extends their benefits for another 13 weeks. These claims remained relatively stable in the latest week but are still at elevated levels.
Despite the weekly decline that was reported, the bottom line is that we are not seeing any real improvement in unemployment claims as 19 million people are still receiving some type of benefits.
Record Low Housing Inventory Remains a Challenge
Existing Home Sales, which measures closings on existing homes, were down 2.5% from October to November, which was in line with expectations. However, sales were up nearly 26% compared to November of last year.
Low inventory remains the biggest challenge for buyers, as there were only 1.28 million homes for sale. This is down 9% from October and a whopping 22% annually. Unsold inventory is at just a 2.3 months’ supply, which is a record low.
As a result, homes sold quickly in November as they averaged just 21 days on the market and 73% of them sold in under 30 days. The other 27% were probably not priced realistically.
The median home price was $310,800, up 14.6% compared to November of last year. Remember this is not the same as appreciation. The median home price simply means half of the homes sold were above and half were below that price. In November, sales on the lower end of the market were flat to lower, but sales for homes above $750,000 are up 85% year over year. This is why the median home price moved higher.
Also of note, the number of first-time homebuyers remained stable at 32%, even with the stiff competition for homes on the lower end.
Sales of new homes also declined 11% from October to November, which was lower than expectations. However, given the downward revision to October's sales figures, sales in November were really down 16%.
On an annual basis, however, sales are up 20.8% compared to November of last year even with the big drop in inventory – which is down 13.4% year over year! Part of the reason inventory is so low is the lack of building during the beginning of the pandemic.
Quite simply, if there were more homes for sale there would be more sales.
The median new home price increased to $335,300, up 2.2% year over year. Again, this measures the middle-priced home that sold, not appreciation.
Home Price Appreciation Remains Strong
The Federal Housing Finance Agency (FHFA) released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. Home prices rose 1.5% from September to October and are up 10.2% year over year, which is even higher than the 9% annual reading in the previous report.
Note that while you can have a million-dollar home with a conforming loan amount, the report most likely reflects lower-priced homes, where supply is tightest and demand is strongest. This is why the annual appreciation data was even stronger than Case-Shiller's Home Price Index.
Key Elements of the Stimulus Bill
After months of negotiation, Congress passed a $900 billion stimulus deal, which among other things includes direct payments of $600 to individuals who earn up to $75,000 and couples filing jointly who make up to $150,000. The bill adds another $600 for every child.
The bill will add a $300 federal unemployment supplement through mid-March and extends programs making freelancers and gig workers eligible for benefits. It also puts $284 billion into Paycheck Protection Program small business loans.
The bill also extends the federal eviction moratorium through January 31 and funds $25 billion in rental assistance.
The bill has been sent to President Trump for his signature, though he has indicated he would like to see some changes to it, including higher direct payments, so the ultimate fate of the bill remains to be seen.