In March and April, the pandemic cost 22 million payroll workers, and approximately 9 million were recovered by July. More recently, however, work opportunities seem to have stalled, and other figures have shown that the labor market remains in recessionary shackles. On August 27, the Labor Department said that last week, just as it has been most weeks since late March, the number of Americans applying for unemployment benefits topped 1 million.
That's about four times the number before the pandemic of average weekly applicants. And for individuals in service industries like restaurants , hotels, travel, and entertainment, the near-term work prospects are poor. As of July, the U.S. unemployment rate stood at 10.2 percent.
Compared to previous months, the rate is encouraging but still above the highest rate during the Great Recession, 10 percent in October 2009. The continued resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic reflected these changes in the labor market. At the same time, the stimulus package passed by Congress in March was more than double the amount of financial support offered in the last downturn.
Real gross domestic product (GDP) decreased at an annual rate of 31.7 percent in the second quarter of 2020, according to the “second” estimate released by the Bureau of Economic Analysis. Real GDP decreased by 5.0 percent in the first quarter. The GDP estimate released today is based on more complete source data than were available for the “advance ” estimate issued last month.
The decrease in real GDP in the advance estimate was 32.9 percent. In the second estimate, investment in private inventory and expenditure on personal consumption (PCE) decreased less than previously estimated.
Current-dollar GDP decreased 33.3 percent, or $2.07 trillion, in the second quarter to a level of $19.49 trillion. In the first quarter, GDP decreased by 3.4 percent, or $186.3 billion.
In contrast to a 1.4 percent increase in the first quarter (Table 4), the price index for gross domestic purchases decreased by 1.5 percent in the second quarter. In comparison to a rise of 1.3 percent, the PCE price index decreased 1.8 percent. The PCE price index decreased 1.0 percent, excluding food and energy costs, compared to a 1.6 percent rise.
The decline in second-quarter GDP reflected the response to COVID-19, as in May and June, 'stay-at-home' orders given in March and April were partially lifted in some parts of the country, and government payments for pandemic assistance were distributed to households and businesses. This resulted in rapid inactivity changes, as corporations and schools continued remote work, and their spending was canceled, limited, or diverted by customers and businesses.
Housing Affordability Overview For 2020 & 2021
The affordability of housing is largely driven by the gap between household income and home value. The equilibrium between supply and demand for housing, the labor market and mortgage rates is affected by Federal monetary policy. Housing is affordable if an appropriate minimum quality of housing can be acquired and maintained, leaving enough income to meet necessary non-housing expenditure.
The ratio of house prices to income or earnings is the most commonly used indicator in the US and many other countries. A higher proportion suggests a comparatively higher degree of affordability. A ratio of 100 shows that the median family income is adequate for the median-priced home to be purchased. Ratios above 100 indicate that to purchase a typical house, the typical household has more income than necessary.
Low-income households may therefore spend a high proportion of their income on housing, and vice versa. A given family needs to spend no more than 25 percent of its mortgage payment income to afford a standard mortgage payment (for a 30-year fixed-rate mortgage with a 20 percent down payment).
It is possible that households spending more than 25% of their income on housing costs would face a financial strain or stress. Qualifying income is derived, at the effective mortgage interest rate, from the monthly payment on the median-priced existing home.
Before the coronavirus hit, affordability was already an issue for the US housing market. There was a lack of affordable housing, pushing up the cost of housing that can be afforded by Millennials. This is key as Millennials are granted half of all home mortgages. And as Boomers and Generation Xers choose to hold onto their homes, they are pressured to compete for new housing stock. Comparing the median household income to the median home price, the housing affordability index determines the affordability of the housing market.
For February 2020, the national housing affordability index was 170.0 That was a rise of almost one percent from the previous month and an increase of eight percent from a year before. An affordability index of 100 would mean the average individual would be able to afford the average home. An increasing index of affordability means that more individuals are priced out of the housing market. It is possible that the coronavirus' economic fallout will make housing less affordable, not more so. The official rate of unemployment
In June, leisure and hospitality jobs grew sharply. In retail trade, education and health services, other services, manufacturing, and professional and business services, notable job gains also took place. All this adds up to tens of millions of families, many of them significantly seeing their income decline. And home prices are going to stay steady or fall by just a few percentage points. While the housing portion of this equation is almost unchanged, the result is a dramatic drop in the average household income. The housing affordability index we could easily see reach 200.
This is one of the predictions of the housing market that is more certain. The rising average price of new homes is another factor which affects this equation. Luxury homes have already been prioritized by homebuilders over affordable and/or starter homes. That's why, in 2019, the median home price rose. We would expect home builders to concentrate their small workforce and money on luxury homes that will sell for more. And that, as long as the economic downturn persists, would exacerbate the housing affordability index.
However, your decision to purchase a home should not be affected by the housing market forecast. Instead, based on your economic condition, you should make the decision to purchase a home. Some may be afraid of listing their home with pessimistic housing market predictions, but many motivated sellers will list their property. That may lead to a decrease in selling prices, but it provides an excellent opportunity to purchase.
Sexton Group Real Estate Property Management in Berkeley, California is a boutique real estate company specializing in residential sales as well as property management services for properties throughout the San Francisco Bay Area. We have 3 offices to serve you, one in the heart of picturesque Berkeley, one near downtown Oakland and the third in the heart of historic Lafayette, California. The Sexton Group encompasses the essence of Berkeley’s charm and Lafayette’s family-oriented vibe all with a relaxed, down-to-earth nature. We are an amazing group of agents whose wealth of experience spans more than 25 years in the industry. Looking to sell a home in Contra Costa or Alameda County? Contact us today for your free consultation!
