September 23, 2020

Home sales activity continued its stellar run into August, and for-purchase mortgage application activity reached recent highs. But increased rates of business closures signal that broader portions of the economy continue to struggle.

Existing home sales continue to run hot…

• August existing home sales rose 2.4% from July and 10.5% from a year ago, to 6 million (SAAR), according to the National Association of Realtors, the highest level since December 2006.
• Total for-sale inventory fell 0.7% from July and 18.6% from August 2019.

…Applications for home purchase loans are also strong…

• The Mortgage Bankers Association’s seasonally adjusted for-purchase mortgage applications index increased 3% in the week ending September 18.
•  The unadjusted index was up 25% from a year ago.

…But business closures accelerated in the late summer.

• Business closures increased 23% from mid-July to late August, according to a report from Yelp.
• As of late August. almost 60% of closures were deemed permanent.

So what? 

As the weather cools, the housing market is continuing to run incredibly hot, even in the face of the pandemic. Sales of existing homes last month topped an already strong July and were the strongest recorded in any August since 2006. Even with much of the economy on pause or operating at limited capacity, home shoppers are more than making up for time lost during the pandemic’s initial months and are snatching up homes virtually as soon as they hit the market. Historically low mortgage interest rates are helping buyers stretch their budgets, keeping monthly payments low even as home price growth accelerates. And sales volumes might be even higher if record-low levels of inventory weren’t working to throttle the market and prevent still more would-be buyers from finding the home that’s right for them. Pent up demand that pushed delayed spring sales into the summer could be inflating recent numbers somewhat, but there’s no question that demand for housing — high even before the pandemic — has stayed at a boil. Sales volume could begin to taper in late 2020, but given current conditions, it’s unlikely to diminish too much.

For-purchase mortgage applications activity increased last week after a modest step back earlier in the month, adding even more evidence that buyer demand remains firm heading into the fall. The MBA’s seasonally adjusted for-purchase mortgage activity index rose to a new recent high, notching its strongest showing in more than a decade. The reading and weekly improvement were probably inflated somewhat by the fact that Labor Day was as late as it could be this year, but the figures reaffirm that people are still eager to buy homes, even as inventory remains tight and price growth accelerates. Many parts of the broader economy are seeing their recoveries slow, but housing-related activity appears to be moving as close to full-steam-ahead as possible.

But even as the housing market continues to cruise, slowdowns in consumer activity and uncertainty regarding future aid packages have prompted a notable increase in small business closures in the last two months, according to Yelp. The number of businesses that were open on March 1 but marked as “Closed” on Yelp by late August has risen 23% from mid-July. The number of businesses that are permanently closed has increased by 31% over the same time. Almost 60% of closures as of August 31 were marked as permanent, up from 41% at the beginning of June. According to the report, closures are being felt heavily in the restaurant and retail industries, while home, local and professional services – including auto repair shops, landscaping companies and accountants – have weathered the storm much more successfully. There are also notable regional differences in closure rates across the country. In California, Hawaii and Nevada – three states that are reliant on tourism and hospitality – more than 9 out of every 1000 businesses have closed permanently since March. Absent additional aid for small businesses, and with consumer activity showing decelerating improvements, that rate could grow further in the coming months.

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