Housing Demand Strong, But Other Economic Recovery Signs Point Down

Activity in the housing sector is a strong point in the nation’s economic recovery from the COVID-19 pandemic, according to a new report.

Sales of existing and new homes increased significantly in June, and data points to stable demand for housing, according to a report by Bank of America Securities’ US Economists Stephen Juneau and Michelle Meyer.

“However, further improvement may be difficult to come by as some of the sharp recovery likely partly reflects a pull forward in activity and pent-up demand,” said the report.

But demand for housing is the high point in the economic recovery. Other signs are bad.

“Simply put, as news on the virus worsens, consumers limit economic activity, which leads to a drop in new virus cases,” wrote report author Meyer in an article. “That prompts activity to increase again, which leads to an increase in virus cases and the loop starting again.”

Economic activity stalled in June and July as cases of the coronavirus spiked in the South and West, which decreased consumers’ mobility and cut visits to stores and workplaces, the report said. But now the spread of the virus seems to have hit a plateau, since cases in major hotspots of Texas, Florida and Arizona have declined. Other states are starting to flare up, though. Deaths are also edging higher.

“These mixed messages on progress in fighting the virus can have important economic implications as we believe there is a negative feedback loop between the virus and the economy,” according to the report. “Simply put, as the virus news worsens, consumers limit economic activity, leading to a reduced spread of the virus, then the economy reopens and the virus starts to spread again, restarting the loop.”

The economic recovery also depends on government intervention, as 22 states have reversed or paused reopening. Thirty-one states and Washington, D.C., now require masks, which can control the virus and prevent future shutdowns, the report said.

Jobless claims are historically high at 16 million for the week ending July 11, which is 14 million higher than before the pandemic. Small businesses in July weakened their employment in business activity, but on the other hand, there’s also an influx of new businesses that may offset bankruptcies and closures. Job postings rose by 1% for the week ending July 24, the report said.

But compared to June, economic activity slowed down in July, the report added. People are slowing down their mobility, with the exception of the Northeast, where mobility is increasing. Gains in air traffic have stalled in July, and there hasn’t been much change in the number of people dining out at restaurants. Consumer confidence is down, the report said.

“Confidence will play a key role in determining the pace of the recovery,” said the report. “By our measure, it appears we have a long way to go before we return to pre-COVID-19 levels of confidence.”