In this Real Estate News Brief for the week ending May 9th, 2020… an economy in turmoil, words of encouragement from Warren Buffett, and a pick-up in mortgage activity.
We begin with economic news from this past week and another round of job losses. The latest weekly report shows an additional 3.2 million unemployment claims for a total of more than 20 million jobs lost in April. That’s brings us to about 33 million jobs lost since the pandemic began. (1)
The number of people collecting unemployment is lower, around 22.6 million. That could be due to claims that were rejected, or people getting new jobs. The unemployment rate is now around 14.7%, but the layoffs are slowing down.
In other telltale signs of economic distress, the U.S. trade deficit was up 12% in March to $44.4 billion. That’s largely due to the lack of international travel and tourism as well as disruptions in the import and export of goods like cars and iPhones.
Consumer credit card use is also down. The Federal Reserve says it dropped $12 billion in March to an annual rate of 3.4%. According to MarketWatch, that’s the first decline since August of 2012. It also comes after a $19.9 billion gain in February.
Warren Buffett offered words of encouragement this last week. The 89-year-old billionaire investor said the pandemic will damage the economy and hurt his own investments, but he says, the U.S. has the strength to survive this brutal downturn. He opened the Berkshire Hathaway annual meeting with almost two hours of commentary. He announced the sale of ALL of his airline stocks, and a loss of about $50 billion, but said he is poised to make a big acquisition, when the time is right. As for a recovery, he referred to American “magic” and said, “Nothing can stop America when you get right down to it. I will bet on America for the rest of my life.” (2)
Mortgage rates rose a tiny bit but they are still near a record low. According to Freddie Mac the average 30-year fixed-rate mortgage is up three basis points to 3.25%. This is the fifth week in a row that it’s been this low. Because stay-at-home orders and job losses are making it difficult to buy homes, Freddie says the year-over-year purchase demand was down 35% in mid-April.
In other news making headlines…
Increased Home Loan Activity
Purchase demand could be changing. The Mortgage Bankers Association reports a jump in applications during the last week in April. It says they were up 6% compared to the week before. Refinancing accounted for 70% of those applications, because of the low rates. Overall applications are still down 19% from the same time last year, but the increased activity is an encouraging sign.
Getting a home equity loan will be more difficult. JPMorgan Chase and Wells Fargo say they have stopped accepting new HELOC applications. Bank of America has also raised the bar on getting one, along with other lenders like TDBank.
iBuyers Restarting their Offers
iBuyers are returning to the real estate market after a pandemic-induced shutdown. Offerpad announced that it will resume operations on Friday May 8th in more than 800 cities. It also announced new procedures to reduce health risks to people involved with the transactions. They were developed with the help of HealthyVerify, and involve things like the disinfecting of common areas, limits on how many people in homes at one time, and the handling of transactions remotely.
Opendoor is also starting back up with new features that will reduce person-to-person contact. CEO Eric Wu said in a blog, “Life didn’t cease because of COVID-19.” He says, “People still have a need for a home with an extra bedroom, a bigger backyard, or a better school district. And we’ve heard loud and clear that safety is the number one priority.”
Layoffs Hitting Airbnb
In a move that isn’t all that surprising, Airbnb announced layoffs. As you know, the travel industry has been hit hard. Cancellations were pretty-much across-the-board when the virus started ravaging our country. Just a few days ago, the home sharing company said it would be cutting 1,900 jobs or about 25% of its workforce.
CEO Brian Chesky says, he knows that Airbnb will fully recover, but it’s impossible to know exactly when that will happen. Severance will include 14 weeks of pay, an additional week for every year of employment, health insurance for up to a year, and shareholder status.
Chesky says, there will be long-lasting changes to the industry and because of those changes, he says the company needs to make “more fundamental changes to Airbnb by reducing the size of our workforce around a more focused business strategy.” As with Airbnb, there’s work ahead for all of us.
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(1) Jobless Claims: MarketWatch
(2) Warren Buffett on the Downturn: NewsMax