Coronavirus slams housing market, Philadelphia's manufacturing sector

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Housing starts fell 22.3% in March as COVID-19 slammed the brakes on new home construction. Building permits, a sign of future new home construction, also declined last month.

Meanwhile, initial jobless claims fell 1.37 million to 5.245 million in the week ended April 11, the Labor Department reported Thursday. The previous week's level was revised to 6.615 million from 6.606 million, reaching 22 million in total since March 21.

The Commerce Department reported Thursday that housing starts dropped to a seasonally adjusted annual rate of 1.216 million, down from February’s revised level of 1.564 million. Starts, however, are 1.4% above the 1.199 million level seen in March 2019.

Building permits decreased 6.8% to a seasonally adjusted annual rate of 1.353 million, down from February’s rate of 1.452 million. Permits are 5.0% above the 1.288 million level seen last March.

Housing completions in March dropped 6.1% to a seasonally adjusted annual rate of 1.227 million, from 1.307 million in February and is 9.0% below the March 2019 rate of 1.348 million.

The surge in unemployment claims is straining household budgets and leading to more requests for mortgage forbearance, according to the Mortgage Bankers Association.

The MBA’s latest Forbearance and Call Volume Survey showed that the total number of loans in forbearance in the week ended April 5 rose to 3.74% from 2.73%.

Mortgages backed by Ginnie Mae showed the largest weekly growth at 1.58% and the largest overall share in forbearance requests by investor type at 5.89%. The share of Fannie Mae and Freddie Mac loans in forbearance increased to 2.44% from 1.69% in the prior week.

Independent mortgage bank servicers continued to have a higher share of loans in forbearance at 4.17%.

“The nationwide shutdown of the economy to slow the spread of COVID-19 continues to create hardships for millions of households, and more are contacting their servicers for relief in accordance with the forbearance provisions under the CARES Act,” said Mike Fratantoni, MBA’s senior vice president and chief economist. “With mitigation efforts seemingly in place for at least several more weeks, job losses will continue and the number of borrowers asking for forbearance will likely continue to rise at a rapid pace."

Changes in the industry were becoming apparent, he said.

“There was a decline in call center hold times and abandonment rates in the latest survey, which indicates the mortgage industry is adapting to the current environment by adding or reallocating staff and increasingly utilizing its websites to help borrowers,” Fratantoni said.

Freddie Mac reported Thursday its primary mortgage market surveyed showed that the 30-year fixed-rate mortgage averaged 3.31%.

“Mortgage rates continue to hover near all-time lows for the third straight week," said Sam Khater, Freddie Mac’s chief economist. As a result, refinance activity remains high, but home purchase demand is weak due to economic tightening.”

The four-week moving average of jobless claims rose 1.241 million to 5.509 million from the previous week's revised average of 4.268 million, originally reported as 4.266 million.

“There is not a direct one-for-one read across from initial jobless claims to the BLS measure of unemployment, but April is bound to be truly shocking,” said Brian Coulton, chief economist at Fitch Ratings. “Making some reasonable assumptions about other inflows and outflows, we could see unemployment rise to 25 million in April, 15% of the workforce. This is much higher than the previous post-war high.”

The largest increases in initial claims for the week ending April 4 were in Georgia (+256,312), Michigan (+84,219), Arizona (+43,488), Texas (+38,982), and Virginia (+34,872), while the largest decreases were in California (-139,511), Pennsylvania (-127,037), Florida (-58,599), Ohio (-48,097), and Massachusetts (-41,776).

The advance seasonally adjusted insured unemployment rate rose 3.1 percentage points to 8.2% for the week ending April 4. This marks the highest level of this rate. The previous high was 7.0% in May of 1975.

The highest insured unemployment rates in the week ending March 28 were in Rhode Island (11.9%), Pennsylvania (9.8%), Nevada (9.6%), Washington (9.3%), Connecticut (8.9%), Massachusetts (8.7%), Minnesota (8.7%), Michigan (8.5%), Ohio (8.4), and Georgia (8.2%).

“Despite the moderation, about 22 million jobs have been lost over the past four weeks, exceeding the 21.5 million jobs created since the expansion began in June 2009,” said Scott Anderson, chief economist at Bank of the West.

Manufacturing activity in the Philadelphia area continued to weaken in April, according to firms surveyed by the Federal Reserve Bank of Philadelphia.

The diffusion index for current activity plunged to negative 56.6 this month from negative 12.7 in March, falling past the lows seen in the Great Recession. It is the lowest reading since July 1980.

The index for new orders dropped to its lowest reading ever, to negative 70.9 in April from negative 15.5 in March.

According to results from the Philadelphia Fed’s manufacturing business outlook survey, the current shipments index fell a record 74 points after remaining slightly positive in March.

Companies reported widespread decreases in manufacturing jobs with the current employment index falling 51 points to negative 46.7, the lowest reading since March 2009. The average workweek index fell 55 points to negative 54.5, its lowest reading ever.

Despite the current weakened conditions, respondents remained optimistic about growth over the next six months. The diffusion index for future general activity rose eight points to 43.0, after falling 10 points in March.

More than 53% of the firms surveyed said they expect increases in activity over the next six months, while 10% expect declines.

The firms’ expectations for employment over the next six months moderated, with the future employment index falling three points. Almost 35% of the firms expected higher employment, while 8% expected lower employment.

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Coronavirus Economic indicators Jobless claims Housing Ginnie Mae Freddie Mac