Sustained Momentum in the Housing Market

Although vaccine hesitancy has led to rebounding COVID-19 cases, lessons learned in 2020 won’t derail recovery

By Patrick Duffy

In the month since I wrote about a joyful return to summer due to increasing vaccinations, deep-seated vaccine hesitancy levels in much of the country will likely slow down, but not derail, the economic recovery. That’s mostly due to adaptations made last year as well as more public and private employers requiring either proof of vaccination status or regular testing. Overall, the size of the economies in the U.S. and the Euro Zone are returning to their pre-pandemic levels, with growth in the latter now even faster than in America. Ironically, the housing market may benefit from rising caseloads as even more buyers and renters seek out more space in suburbs and smaller metro areas.

As of late July, although nearly 50% of all Americans and 60% of adults over age 18 were fully vaccinated, the exponentially higher contagion rate of the Delta variant of Covid-19 has sent estimates of required herd immunity up to 85% or more. Fortunately, even if we don’t reach that level, crucial adaptation lessons learned in 2020 mean that the economic impacts are mostly focused on consumer-facing jobs in hospitality, travel and retail.

Although an early July survey among purchasing managers by IHS Markit showed their U.S. output index falling for the second consecutive month to 59.7, this is still a historically high rate of growth, with the decline most faced by service providers facing a challenging labor market.

For now, the reasons for the mismatch between employers and employees remain mixed, but it’s quite possible that the combination of the ending of enhanced unemployment benefits in early September, along with a return to school for many, will lead to a more rapid increase in job growth. While a recent poll by Morning Consult showed that just 13% of respondents specifically named these benefits as a reason for remaining out of the workforce, it’s also likely that this extra money was allowing workers to become more choosey on preferences including job descriptions, pay, benefits and the availability of remote work.

While the rise in the ‘quit rate’ did decline slightly to 2.5% in April, it’s still high by historical standards, and the most elevated for customer-facing jobs in hospitality and retail sales, while the lowest in durable goods manufacturing, information technology, finance and government. In many cases, these quitting employees are specifically seeking out and retraining for jobs which involve less customer interaction, safer working environments and better pay.

For its part, the real estate industry was among the first to adapt in 2020, allowing home builders and brokers selling existing homes to ramp up quickly as the demand for homes in all areas increased. Still, there remains a considerable slack in the labor market which will take months to fill, and likely continued further by a resurgence in the more infectious Delta variant.

While inflation remains a concern for both businesses and consumers, more recent data from the PCE Price Index for June shows monthly and annual inflation remaining somewhat flat at 0.5 and 4.0%, respectively. Although that rate is certainly higher than what the Federal Reserve would prefer, the flattening of the slope does give it more room to maneuver, likely starting with scaling back on bond purchases before hiking the Federal Funds rate.

Although consumers remain understandably anxious about a rise in new virus cases, their views on inflation are quite different than in the 1970s, largely because they assume wages will keep pace with higher prices for goods and services.  Although CEO confidence is back to pre-pandemic levels, small business owners remain concerned about future growth due to labor challenges, which will likely sort themselves out over the next few months.

For its part, although the housing market has softened recently due to higher prices, the demand side of the equation remains strong, fueled both by millennials with growing families and more boomers taking advantage of record-high housing prices to relocate to retirement communities or smaller metro areas with a slower pace of life. For those consumers wanting new homes but not able to afford them, the rise of single-family homes for rent (SFR) are increasingly providing more options, especially with more investor money and partnerships with large public builders such as Pulte coming into play. Even if we start to see fewer homes bought over the list price and a gradual return to a more normalized market, this boom still has plenty of room to run for the foreseeable future.

Patrick Duffy is a Principal with MetroIntelligence and contributes to BuilderBytes. He can be reached at or at 310-666-8288.