Morning Report: The service sector rebounded strongly in June

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30 year fixed rate mortgage 3.12%

 

Stocks are lower this morning on overseas weakness. Bonds and MBS are up.

 

The services economy rebounded in June, according to the ISM Non-Manufacturing Survey. Production-related indicators are leading employment indicators. That said, many of the comments in the survey pointed to higher-then-expected demand and shortages. “Sales have picked up tremendously. Sporadic supply issues. Biggest concern for us is lumber shortages.” (Construction). Overall, the headline number for the index was 57, much higher than the 50 that was expected and is consistent with an economy that is growing quickly. Further evidence that the recession probably ended in early May some time.

 

CoreLogic is predicting that home prices will fall at an annual rate of 6.6% by May of 2021.

Strong home purchase demand in the first quarter of 2020, coupled with tightening supply, has helped prop up home prices through the coronavirus (COVID-19) crisis. However, the anticipated impacts of the recession are beginning to appear across the housing market. Despite new contract signings rising year over year in May, home price growth is expected to stall in June and remain that way throughout the summer. CoreLogic HPI Forecast predicts a month-over-month price decrease of 0.1% in June and a year-over-year decline of 6.6% by May 2021.

Unlike the Great Recession, the current economic downturn is not driven by the housing market, which continues to post gains in many parts of the country. While activity up until now suggests the housing market will eventually bounce back, the forecasted decline in home prices will largely be due to elevated unemployment rates. This prediction is exacerbated by the recent spike in COVID-19 cases across the country.

While this is certainly possible, the supply / demand imbalance is so stark right now, I suspect that anyone who decides to wait for lower prices will regret it. I could see weakness in the luxury end of the market, where there is more inventory. Certainly urban luxury apartments are going to experience a perfect storm of people fleeing the cities and a potential drop in foreign buyer interest due to the violence. A drop of 6.6% seems aggressive to me.

 

Zillow Offers resumes activity in 5 more markets. Zillow Offers is a program where the company will purchase a home directly from a buyer, which would allow the buyer to submit a non-contingent offer on their next home. Zillow would then make any necessary repairs, clean and stage the home for sale. I think Zillow charges around 7.5% to do this, which is probably about the cost of the realtor charges and any fix-up costs the seller would have to pay otherwise.

 

Interesting reaction to COVID-19: Potential buyers need a pre-approval letter to enter the house. “Having a pre-approval letter has long been a preferred requirement by agents when submitting an offer, but having a pre-approval letter before looking at homes given the COVID-19 environment is an absolute must,” says Cara Ameer, a real estate agent with Coldwell Banker Vanguard Realty in Ponte Vedra Beach, Fla. “Sellers and listing agents are cautious about who is coming into their homes, and they want to ensure that only those that are truly qualified are coming through their doors.”

25 Responses

  1. Like

  2. Great data-driven discussion of COVID-19 numbers, testing, positive cases, death rates, etc.

    View at Medium.com

    Has a link to a real deep dive into the numbers at the end. Guy’s a fan of data analytics.

    Like

    • Kev – it is an interesting article. I am sure his stats are better than most partly because of the advantage of hindsight, and partly because he brought a statistician’s view to it.

      I have only one criticism. While the whole industrialized world has handled this by trial and error this country has refused to do so, either because many people are too stubborn to believe in the germ theory of disease or because of bad leadership, or both. America did not open too soon but it has opened in many places too stupid. We are like Brazil when we should be like Germany.

      https://www.star-telegram.com/news/nation-world/national/article243985782.html

      Maybe MX will pay for the wall, after all.

      Like

      • Mark:

        I have only one criticism. While the whole industrialized world has handled this by trial and error this country has refused to do so…

        Why do you say that?

        And even if true, our results haven’t been noticeably worse. Consider:

        The five largest countries in the European Union are Germany, France, UK, Italy, and Spain, which combined have a population of comparable size to the US (320 million). According to the NYT tracking website, the number of deaths per 100k people across these 5 countries is 48.5. In the US the number is 40.

        Germany alone has far and away the lowest death rate of any of the other European nations at 11 per 100k people. The three largest states in the US, CA, TX, and FL, have a combined population comparable to that of Germany (80 million). The combined death rate of those three states in the US is 15 per 100k people, so somewhat higher than Germany, but much closer to Germany than to the other 4 European nations. Texas itself has a death rate of 10 per 100k, so actually lower than that of Germany.

        What is it about these numbers that suggests to you that the US has either a) a unique disbelief in the germ theory of disease or b) uniquely bad leadership?

        Like

        • Scott, it is the failure to curb the spread.

          It comes down to refusal to wear masks and refusal to physically distance and refusal to avoid indoor crowds. Crowded cities like Seoul and Taipei and industrial nations like Germany and Italy have reopened and continued these restrictions without people claiming they have some sort of personal liberty or religious right to not wear a mask in a crowd.

          If that were the mode of reopening as it was in most of Europe, Canada, Aussie, NZ, SK, Taiwan, etc., then the ability to test and trace flare-ups would be effective.

          This could still be turned around, and without mass closing of the economy. I think that we have given up on our best timing – while school was out. Still, it remains possible at any time to turn down the curve because this virus is not long lived outside an animal host. It needs hosts. Denied hosts, it will disappear from a population. Communal mask wearing in appropriate situations and physical distancing denies the viral spread and fairly rapidly reduces the number of human hosts.

          Other countries tried different models but almost all the industrialized world within two months came to mask + distance as the key to reopening successfully. But something like 25% of Americans say they think it is their right to be unmasked. WTF?

          Like

        • Is there another country that has failed to curb the spread with the same or more testing per capita?

          If you scroll down on this page, we’re number 2 on per capita testing.

          https://ourworldindata.org/coronavirus-data

          Like

        • We have testing capacity. We just haven’t opened smart. Testing and tracing is most useful when the disease is curbed and outbreaks are localized. Symptom onset is the place to focus test and trace now. Just running up numbers is the exact stat issue that Ketter and Nate Silver find so relatively useless.

          ADDENDUM – gonna be busy all day so see y’all later.

          Like

        • How has the death rate from Covid gone in states that have re-opened?

          Like

        • McWing:

          How has the death rate from Covid gone in states that have re-opened?

          The goalposts have moved. Apparently death rates are not the concern anymore. It is mere spread that matters now, even if it is not particularly deadly to those catching it.

          Like

        • The spread, hell. It’s positive test results as testing increased exponentially. It’s not even clear there is spreading–or excessive spreading, at any rate–that hadn’t already happened during the lockdown.

          Like

        • I was surprised – although in hindsight I shouldn’t have been – to find out from your link that “new cases” is actually including both positive antibody and antigen tests. So anyone who had it in March but never got tested until June, counts as a “new case”. Anything to make things sound worse than they actually are, I guess.

          Like

        • Doesn’t surprise me at all. In fact that’s what I expected. I also expect both tests are counted in the number of tests being done, so the exponential rise of testing (that unsurprisingly matches the rise of positive results) probably includes the antibody tests.

          Like

        • One of the stat distinctions Ketter draws IIRC is between number of cases reported, totally uninformative as to the actual number of cases, for reasons made obvious, and date of first symptoms reported, which is a more reliable number reflecting people who know they got sick.

          Scott, see this table from Austin-Travis County PH:

          https://austin.maps.arcgis.com/apps/opsdashboard/index.html#/39e4f8d4acb0433baae6d15a931fa984

          BLOW UP THE SECTION CALLED COVID-19 Policy Implementation Dates vs Symptom Onset Dates (Epi Curve)
          Hover over white dot to view policy onset

          Peak symptom onset report was ten days after the Memorial Day bars reopening and the pressure relief crush of folks under forty, back to back and belly to belly, in tight quarters for extended periods. City County PH predicted it and it happened on schedule. Then on June 15, while Abbott was saying local gov could not make general masking orders, Austin, Houston, San Antonio, and Dallas all followed San Antonio’s lead and ordered businesses to mask all employees and refuse service to unmasked patrons.

          DECLINE of first report of SYMPTOMATIC cases? Like a silver fucking bullet.

          Closing indoor bars during that DECLINE also probably counted for the acceleration in the decline of first symptoms report, but that went into effect on June 27.

          Like

        • Mark:

          Scott, it is the failure to curb the spread.

          If the spread is not producing more deaths, why should it matter? Indeed, in the absence of a vaccine, and in the interests of herd immunity, shouldn’t we want it to spread as quickly as possible, especially to the majority of people who are, in fact, least likely to be seriously effected by it?

          I guess, as per KW’s link (which was a great find, BTW), you are taking a firm stand on the suppression over mitigation strategy. I am more inclined to be sympathetic to the mitigation strategy, but it isn’t because I reject the germ theory of disease or because I don’t like strong leadership..

          But something like 25% of Americans say they think it is their right to be unmasked.

          Those crazy Americans and their irrational fetish for freedom!

          But then again, isn’t it their right? If the government started telling women that they had to wear burkas in public in order to protect both themselves and others from the spread of rape culture, would you think it absurd for 25% of women to object and claim a right not to have to do so?

          Like

        • If the spread is not producing more deaths, why should it matter?

          I’m not sure if curbing the spread is ultimately a realizable goal, or one where the cost (in terms of health and lives) isn’t actually worse than the “cure”. Previously, pandemics burn themselves out–by spreading. There have been efforts to limit spread and quarantine, but with highly contagious viruses eventually everyone gets exposed (except for hermits living in caves by themselves on mountains). If you ever want to go outside again–eventually you are likely to get exposed. Unless we did a serious “don’t leave your house” lockdown for months and months. Groceries delivered by guys in hazmat suits.

          What we’re doing is contagion delayed, not contagion denied.

          Also, spread limitation is backwards–it should be individual rather than collective. That is, if I’m 80–stay away from me. I would self-isolate in order to prevent MYSELF from getting it. Because just by nature I’m high risk. If I have known comorbities, I self-isolate. *I* do. Not the entire planet.

          But something like 25% of Americans say they think it is their right to be unmasked.

          I think that’s open for discussion. But it’s certainly not an insane or irrational position. Do I have the right to go into a store that stipulates you need a mask to enter, and refuse to wear a mask? This seems questionable. This is just a variation on no shoes, no shirt, no service. Do I have a right to walk on a sidewalk by myself without a mask, having made a rational decision regarding the real danger this represents to others and myself? I would think so.

          Like

        • KW:

          Also, spread limitation is backwards–it should be individual rather than collective. That is, if I’m 80–stay away from me. I would self-isolate in order to prevent MYSELF from getting it. Because just by nature I’m high risk. If I have known comorbities, I self-isolate. *I* do. Not the entire planet.

          Yep…I agree entirely.

          Do I have the right to go into a store that stipulates you need a mask to enter, and refuse to wear a mask? This seems questionable.

          I would say definitively that I do not have that right.

          Do I have a right to walk on a sidewalk by myself without a mask, having made a rational decision regarding the real danger this represents to others and myself? I would think so.

          I agree.

          The idea that it is nuts for someone to object to being told by the government that they have to wear a mask is, to me, what is actually nuts.

          Like

        • “What is it about these numbers that suggests to you that the US has either a) a unique disbelief in the germ theory of disease or b) uniquely bad leadership?”

          Here’s one example of uniquely bad leadership: “health experts” adjusting their theory of disease spread to match their political preferences.

          Even the NYT had to admit it:

          Like

        • jnc:

          Here’s one example of uniquely bad leadership…

          Well, I agree with your point, but two things to note. One, it wasn’t that unique…it happened here in the UK as well. Second, I think Mark was talking about political leadership, which is not – or at least should not be – the domain of “health experts”.

          Like

        • I feel like Fauci and Burx and a lot of the state level Health Department folks are basically political actors.

          Like

        • I got that, just being facetious.

          More directly to the point, the US has been bad in terms of leadership, but it wasn’t just Trump.

          I think Brazil has been worse, and it looks like Japan is done with lockdowns as well:

          https://www.washingtonpost.com/world/asia_pacific/japan-covid-coronavirus-cases-rise-reopen/2020/07/07/8a76fd66-bc74-11ea-97c1-6cf116ffe26c_story.html

          Your point about suppression vs mitigation strategy is key. “Flatten the curve” was never meant to stop the spread, merely stretch it out so that medical resources weren’t overwhelmed all at once. There’s been a complete failure to set expectations or a plan with benchmarks.

          Like

      • I have only one criticism. While the whole industrialized world has handled this by trial and error this country has refused to do so, either because many people are too stubborn to believe in the germ theory of disease or because of bad leadership, or both.

        This may be anecdotal bias? My experience has been people largely taking it very seriously, even too seriously, and continuing to take it seriously and make well-intentioned (if not always wise or cost-benefitted rationally) approaches. Of course my job involves doing everything we can, pretty much every day, to accommodate to a new world of permanent social distancing, avoidance of in-person interactions, virtual education, contact tracking, alerting administrators if a student infected or in contact with a positive person is in attendance . . . and so on. Everything around me has been pretty much 100% effort–beyond perhaps what is wise or reasonable–to prevent the spread of COVID. So I have a hard time seeing us not doing anything (and there has certainly been plenty of trial and error, IMO).

        Some groups and individuals may have been reckless, or at least unconcerned with the pandemic, and so protested or ignored lockdown or mask-wearing orders, but you’re going to see that in a nation of 350 million people, especially when academia (and apparently the media) maintains the new definition of science is whatever progressives say it is. On the whole, the results of these rebels (probably present in every country in the world, but perhaps not reported on here–like so much of what happens internationally is not reported on here, because our media is as bad as it has ever been, IMO) doesn’t seem significantly worse than what has happened in most other nations, nor do any of the protests seem to have led to worse effects that actual government mandates or guidance in NY, NJ, and elsewhere–especially as it concerns nursing homes.

        Maybe MX will pay for the wall, after all.

        If there ever is a wall. Isn’t it three new miles built so far, the rest just 90 miles of replacement fencing/wall-construction? So basically nothing so far, almost 4 years in.

        Like

  3. The NYT Editorial page starts to realize that they’ve been played:

    “Legislators from both parties are already demanding explanations, and the House Armed Services Committee voted by a large bipartisan majority for an amendment to the defense bill to make any further withdrawal of American troops from Afghanistan contingent on an assessment of whether any country has offered incentives for the Taliban to attack American and other coalition troops.

    It is unfortunate to connect the issue of possible Russian payoffs with the withdrawal of U.S. troops.”

    Like

  4. way to prove their point.

    Like

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