Residential Housing Will Be Just Fine

One of the most frequent questions I’ve been asked is about the residential housing market. Many people have memories of 2007-09 and think we will repeat it. However, I’ve been arguing the market will be fine given where the layoffs are happening.

One early indication is looking at the number of mortgage applications. Here’s the data that came out today.

Year-over-year Change in the MBA Purchase Index

You can see that purchase applications are just about where they were last year and recovering quickly. Why? Most people that lost their job are probably not in the mortgage market.

Additionally another item that has helped is mortgage rates. Here’s a graph of rates over the same time period.

30-year Mortgage Rates

They are down 0.50% since the beginning of the year and last year. While 0.5% doesn’t sound like much, all else equal the same mortgage payment will afford you 5% more house.

House prices will be something to watch this summer. Inventory is way down over last year, which could cause bidding wars.

We Have the Power!

One interesting way to look at the impact to the economy is through power consumption data.

Here is the data in 2020 for Lower 48 power in 2020 vs. the average of the prior 4 years. (Day of week adjusted.)

Power Consumption for the Lower 48 – 2020 vs. Last 4 Years

As you can see, power was tracking pretty similarly until late March. Then it dropped as compared to the prior average. Currently, power consumption is down about 10% year-over-year.

This suggests that demand for manufacturing are down along with other business activity that requires significant power.