The Weekly Briefing - June 22nd, 2020

The Weekly Briefing – June 22nd, 2020

In This Week’s Brief

  • Job Improvements in May Extended to Large Majority of States
  • Seniors Housing Occupancy Trends Starting to Bounce Back
  • Garden-Style Apartment Performance Resilient in Key Sunbelt Markets
  • Builder Sentiment on the Rise, and Growth in Mortgage Delinquencies Decelerating

Job Improvements in May Extended to Large Majority of States

With a 2.5 million boost to payrolls in May (consensus expected a net decline of 7.5 million jobs), the national unemployment rate improved 140 basis points. The gains extended across most of the country and demonstrated the broad-based nature of the emerging recovery. Reinforcing this positive trend, today’s release of the Chicago Fed’s National Activity Index for May saw a sharp uptick at 2.61, which is the highest reading since record keeping began in 1967. The Bureau of Labor Statistics reports that 38 states saw the unemployment rate decrease during May, and only four states experienced a meaningful increase in unemployment (the BLS report says three states, but the figure below shows a material increase in Florida). The other eight states saw unemployment rates hold steady. States that moved quickly to relax stay-at-home restrictions and business closures, many of them in the South and West, appeared to experience some of the largest employment gains with Mississippi and Kentucky leading the way. Arizona and Nevada made strong gains as well, which is great progress noting that as of May 30 the number of individuals receiving Unemployment Insurance or Pandemic Unemployment Assistance in those states were approximately 1.2 million and 570,000, respectively. States with stricter lockdowns that are moving through reopening processes, such as those in the Northeast, saw more modest improvement. The divergence in regional employment trends could shift in the coming months as virus cases have accelerated recently across much of the South, which could lead to hesitation among consumers and slow the pace of the recovery.

Over-the-Month Change: States with Largest Unemployment Rate Changes from April to May

Seniors Housing Occupancy Trends Starting to Bounce Back

A weekly survey of seniors housing operators conducted by NIC suggests occupancy levels are beginning to stabilize at senior living communities after experiencing a shock during the early weeks of the coronavirus outbreak. In the most recent survey, approximately half of operators reported occupancy rates either held steady or increased during the preceding month, marking a 20-percentage point improvement since early May for Assisted Living and Memory Care Units. Independent Living has experienced stability over the course of the pandemic with half of operators reporting steady or improving occupancy rates in the past several weeks. A slowly accelerating pace of move-ins appears to be driving the occupancy improvements as the majority of operators have consistently reported no change in the number of move-outs. Approximately 20 percent of operators say move-ins have increased over the past 30 days, increasing from essentially zero a few weeks ago. And while the share reporting a slowdown in move-ins remains elevated, the figure has improved 30 percentage points since early May.

Garden-Style Apartment Performance Resilient in Key Sunbelt Markets

In Atlanta, Houston, and Phoenix, garden-style communities are outperforming with strong, positive rent growth since the beginning of the year amidst lower vacancy rates. Government aid boosting household finances likely provided lift to garden-style rents, and it remains unclear if the divergence will persist beyond this summer when expanded benefits programs expire. But the diverging rent trajectories also underscore the advantages of lower-density development during a pandemic that has put a premium on larger living spaces. The lower vacancy rates at garden-style properties are indicative of longer-term construction trends in which developers have focused primarily on mid- and high-rise buildings in or near the urban core. The rapid pace of deliveries in these areas has elevated vacancy rates and is likely to lead to greater market disruption as urban communities continue to come online in the next year or two.

Year-to-Date Effective Rent Growth & Vacancy Rate by Building Type

Builder Sentiment on the Rise, and Growth in Mortgage Delinquencies Decelerating

NAHB’s builder sentiment index staged a 21-point rebound this month to return to positive territory as builders’ outlooks increased with the single-family housing market’s strong performance in the midst of the pandemic. The rise in the index suggests builders are increasingly optimistic that demand will increase over the next several months as the economy continues to reopen. And as a result new home construction activity is likely to continue bouncing back after housing starts increased 4.3% month-over-month in May. Existing home sales are down 9.7% for May, continuing a three-month slide. However, median home prices YOY continue to be positive amidst tight conditions at 6.3 months of housing supply estimated for April. We expect the monthly supply of houses to increase in tomorrow’s report from the U.S. Census Bureau but remain well below the 12+ months of supply seen during the peak of the GFC (link will update at 10:00 AM EST on June 23, 2020). May saw half as many newly delinquent mortgages compared to the month prior, while payment trends so far in June suggest the rise in delinquencies continues to taper off. Black Knight reports 723,000 homeowners fell behind on their mortgage during May, compared to 1.6 million in April. Approximately 4.3 million homeowners nationwide are currently delinquent on their mortgage payments, the highest level in nearly a decade.

Disclosures and Disclaimers
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