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Zillow Market Pulse: June 8, 2020


June 8, 2020

Headline stock market indices are back where they were at the start of the year. Home buyers are more bullish than home sellers. And expectations for home price appreciation rose modestly.

  • Housing optimism improves, but remains subdued

    • The Fannie Mae Home Purchase Sentiment Index (HPSI) rose 4.5 points from April to May, to 67.5.
    • More than half of respondents believe it's a good time to buy a home, while just under a third think it's a good time to sell.
  • Consumer expectations improving modestly

    • The NY Fed's Survey of Consumer Expectations showed people remain concerned about job prospects and home prices, among other categories, but that their outlook is slowly improving.
    • The median expectation for home price appreciation in the next twelve months is 0.6%.
  • Wall Street is back where it was at the start of the year

    • The S&P 500 gained 1.2% today to sit at 3,232, just below where it started the year.
    •  Stocks have gained nearly 45% since lows reached in March, even as the real economy continues to falter.

 So what?

Two reports released today suggest that people remain worried about the economic outlook, but have begun to peak out from under the covers. The 4.5-point improvement in the May Fannie MaeHome Purchase Sentiment Index was largely driven by notable improvements in perceived buying conditions. A majority of respondents (52%) stated that now is a good time to buy a home, while the share of people who think it's a bad time to buy fell to 39% (from 46% in April). Sellers' outlooks also improved, but still lag behind buyers' – twice as many respondents said they believe now is a bad time to sell as opposed to good. One reason for this divide is mortgage rates: Despite rates lingering near long-term lows in the last few weeks – and showing signs of bouncing off the bottom in recent days – more people in May believed mortgage rates will fall in the next 12 months than did in April. Low rates have prompted a surge in home purchase mortgage applications in recent weeks, which theoretically should buoy seller optimism, as the market for their homes grows and their ability to sell at an acceptable price increases.

A broader read on consumers' outlooks also released today offered similar conclusions. Expectations for income growth, job certainty and home prices all ticked up in May, according to the New York Fed's Survey of Consumer Expectations. But despite the improvement, all of these metrics remain worse than long-term averages, suggesting the economy has far to go before consumers feel confident in the path forward. Improvements in people's perceived chances of losing a job in the next year (from 20.9% to 18.7%, on average) and their expectations for the unemployment rate a year from now (38.9% of respondents believe it will be higher in a year, from 47.6% in April) were likely due in large part to the fact that much of the economy has begun to re-open, rather than about any sort of structural improvement in demand. What's more, uncertainty surrounding inflation is quite high, as people appear to be bracing for sharp increases in the price of gas, medical care and food. Lastly, the outlook for the price of homes improved slightly from April but remains very low — barely half of respondents expect prices to rise in the next 12 months.

Another gain in equity markets today further highlights Wall Street's remarkable recovery in recent weeks, even as the real economy continues to suffer through its worst slowdown in nearly a century. Incredibly, after a precipitous fall in the early days of the pandemic, the S&P 500 has gained 44% since late March — truly a V-shaped recovery – and now sits right at the level at which it started the year. There are reasons to justify such a remarkable improvement in stocks in the last couple months – after all, the stock market is not the economy, and companies listed on the S&P 500 employ only about 10% of the nation's workforce — but there are an equal number of good reasons for some raised eyebrows. While the stock market boomed in April and May, consumer spending fell in one month at a rate more than ten times higher than any previous month. Personal income fell by 6.3% (after removing government transfers) and the service sector – representing 80% of the economy – continued to contract. And just last week, the Congressional Budget Office estimated that more than $15 trillion will be lost in the next decade due to deflationary pressures and lost economic output. If the real economy does not start to show more signs of a rapid improvement, and instead languishes, this optimism in the stock market is likely to subside.

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