Coronavirus slams existing home sales, Philadelphia non-manufacturing sector

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More evidence of COVID-19‘s destructive effects on the economy was seen Tuesday as national and regional data showed housing and business activity slowing.

The Federal Reserve Bank of Philadelphia said its survey of non-manufacturing firms indicated business activity fell to historic lows in April.

The National Association of Realtors said existing home sales fell 8.5% in March to a seasonally adjusted annual rate of 5.27 million. Economists surveyed by IFR Markets had expected sales to have fallen to an annual rate of 5.30 million.

March sales fell in each of the four major regions of the U.S., with the biggest percentage decline see in the West.

However, sales on a year-over-year basis rose for the ninth straight month, up 0.8% from 5.23 million in March 2019.

“Unfortunately, we knew home sales would wane in March due to the coronavirus outbreak,” said Lawrence Yun, NAR’s chief economist. “More temporary interruptions to home sales should be expected in the next couple of months, though home prices will still likely rise.”

Home prices however were still strong in March, the NAR said. The median existing home price for all housing types rose 8% to $280,600 from $259,700 in March of last year. The price increase marked 97 straight months of year-over-year gains. Prices rose in every region of the U.S.

“Existing home sales fell 8.5% in March, slightly above consensus expectations, but down from a 6.3% advance in February,” said Scott Anderson, chief U.S. economist at Bank of the West. “This is the biggest monthly decline since November 2015. Mounting job losses and shelter-at-home orders are undermining housing demand.”

Housing inventory totaled 1.50 million units in March, up 2.7% from February, but down 10.2% from one year ago. Unsold inventory is at a 3.4-month supply, up from three months in February but down from 3.8 months in March 2019.

“Earlier in the year, we watched inventory gradually tick upward, but with the current quarantine recommendations in place, fewer sellers are listing homes, which will limit buyer choices,” Yun said. “Significantly more listings are needed and more will come onto the market once the economy steadily reopens.”

NAR’s most recent flash survey found that 93% of home sellers have changed their behavior to help the home buying process move forward, using social distancing and taking other necessary precautions.

“Despite the social distancing restrictions, with many realtors conducting virtual open home tours and with mortgage rates on the decline, a number of first-time buyers were still able to purchase housing last month,” Yun said.

Foreclosures and short sales represented 3% of sales in March, up from 2% in February and unchanged from 3% in March 2019.

“It is NAR’s top priority to continue to aid and assist realtors during these unpredicted, trying times,” said NAR President Vince Malta. "We have seen an increase in virtual home tours, e-signings and other innovative and secure methods that comply with social distancing directives. I am confident that realtors and brokerages will adapt, evolve and fight, ensuring the real estate industry will be at the forefront of our nation’s upcoming economic recovery.”

Furrther declines are likely before any turnaround occurs.

“Home sales are projected to weaken over the next few months as economic uncertainty causes sellers to pull their homes off the market and buyers become more hesitant to commit to a major purchase,” Anderson said. “This should lead to weaker home price gains and outright declines in many areas before the end of the year.”

At historic lows
The Philadelphia Fed’s diffusion index for current general activity at the firm level fell to negative 82.5 in April, the lowest reading since the nonmanufacturing business outlook survey began in March 2011. The index stood at negative 12.8 in March.

Only 3% of the firms surveyed reported increases in activity, down from 22% in March, while 85% reported decreases, up from 35% last month.

The new orders index plunged 51 points to negative 67.2 in April, falling to an all-time low for a second consecutive month. More than 67% of the firms reported decreases in new orders, while none reported increases.

Philadelphia City Hall

The sales/revenues index also hit an all-time low, falling to negative 87.9 this month from negative 4.9 in March. No responding firms reported increases in sales/revenues, while 88% reported decreases.

The regional activity index plummeted to a historic low of negative 96.4.

Companies reported overall declines in both full-time and part-time employment for the second straight month, as both indexes fell further into negative territory.

The full-time employment index fell 46 points to negative 47.5, an all-time low. While nearly 40% of the firms reported steady full-time employment levels, the share of firms reporting decreases at 52% exceeded the 4% share reporting increases.

The part-time employment index dropped 48 points to negative 58.9, also an all-time low. Twenty-nine percent of the firms reported steady part-time employment levels, with 59% reporting decreases and none reporting increases.

The wages and benefits indicator plummeted 62 points to negative 35.7 while the average workweek index fell 45 points to negative 50.7, historic lows for both readings.

Future activity indexes again fell to historic lows and suggest respondents expect continued declines in nonmanufacturing activity over the next six months, the Philadelphia Fed said.

The diffusion index for future activity at the firm level fell to negative 24.5 in April from negative 16.3 in March. More than 32% of the firms expect an increase in activity in the next six months up from 28% last month. This compares with 57% of firms which expect decreases, up from 45% last month.

The future regional activity index fell to negative 45.8 in April from negative 36.9 in March.

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Economic indicators Housing Federal Reserve Bank of Philadelphia