Layman

Aaron Layman.

Denton home sales closed out a strong summer selling season with record home prices in August. Average home prices pushed above $284,000 for the month, while the price of a single-family home in Denton rose to more than $290,000. Home sales volume in Denton was stable compared to last year, while sales in Denton County rose by double digits for a second consecutive month. By most measures it was a great month for the local real estate market.

New home sales continued to outpace the resale market in August with new construction sales helping to lift the overall sales numbers. Average prices for new construction in DFW fell 3 percent in August, while prices for resale homes were about 2 percent higher. That helps explains the continued sluggishness of the resale housing market in general. Prices are simply too high.

New construction sales were up by 48 percent in the City of Denton during August, while sales of existing resale homes declined by roughly 7 percent. MLS stats show that the average price of a new home sold in Denton actually fell by 5 percent compared to August of last year, while the price of a resale Denton home jumped almost 8 percent.

Denton County saw the same dynamic playing out this summer, where sales of new homes jumped by 25 percent. Sales of resale homes in Denton County rose a more modest 5 percent during the month. Average new home prices in Denton County fell roughly 2 percent compared to last year, and they have been trending lower since the July 2018 peak. Resale prices edged up just 1 percent, helping to sustain the summer sales rebound.

Looking at the headline metrics it was a fabulous summer. That doesn’t mean you should get your hopes up about a spectacular rebound in the housing market. The trend of a stagnating housing market is still intact, confirmed by the percentage sellers are receiving in terms of original list price, as well as the average days on market. Average days on market in Denton County were up by 30 percent compared to last year. The major drop in mortgage rates helped with the decline from the February spike to 53 days.

With mortgage interest rates back to near record lows, there is little room for a misstep. From a practical standpoint, all the Federal Reserve did was push local home prices back to the upper ceiling in terms of what borrowers can afford. That is going to pose some problems going forward.

We are in the midst of the longest economic expansion in American history, and the president just called for the Federal Reserve to drop interest rates to zero or negative. That is not the kind of policy action you see from your central bank during a healthy economy. That is crisis-level policy used to avert economic catastrophe. It should tell you something about the strength of the global economy that the European Central Bank (ECB) just restarted quantitative easing (QE) only 9 months after they ended the stimulus program designed to support their insolvent zombie banks.

For better or worse, the housing market growth story depends on cheap liquidity and intervention. Without intervention, the growth narrative falls flat on its face as the wall of debt hits a ceiling of obligations necessary to sustain it. The rapid plunge in mortgage interest rates in 2019 provided a temporary fix to some of the structural issues with the housing market, but it was only a temporary fix. With the 2020 election coming, there will certainly be more policies and intervention to keep up appearances. Just don’t be distracted into believing that these are permanent solutions to avoid the end of the normal business cycle.

The past week was the worst for mortgage interest rates since 2016, as yields on the 10-year Treasury pushed above 1.8 percent after coming close to the previous cycle low. The Mortgage Bankers Association reported that the mortgage credit availability index (MCAI) experienced a significant drop in August as conventional lenders tightened standards, a prudent move if lenders are expecting a slowdown.

If you weren’t paying attention at the end of 2018, you may have been surprised by the sudden chill in the DFW housing market, as sales declined and inventory shot higher. There is no reason to be caught off guard. The pundits, including many sell-side practitioners in the real estate industry, may tell you that the coast is clear. Nothing could be further from the truth. They may tell you this time is different. Unfortunately, that is rarely the case. The end of the economy cycle will arrive regardless of the Federal Reserve’s (or Trump’s) interventions to prop up the markets.

If we end up seeing negative rates as they are currently experiencing in Europe, the situation could deteriorate even further, exacerbating wealth inequality. Excess liquidity has been goosing home prices higher, but the gap between the rich and the poor has only increased as a result. Trickle-down monetary policy is just as ineffective as trickle-down fiscal policy. New data on household leverage show an alarming gap between the bottom 50 percent of households and the top 1 percent. U.S. consumers are struggling to keep up, and the recent spike in credit card debt provides an important warning sign.

In the coming months, Denton homeowners will receive another reminder of the trickle-down policy driving the U.S. wealth gap, in the form of their property tax bills. Those property tax bills will be higher than ever for many Denton homeowners, and they have little escape from the appraisal creep which has been burying them. The same is not true for the titans of business and industry who are racing to the courthouse in record numbers in 2019 to keep the two-tiered property tax system churning.

There are already more than 300 lawsuits against the Denton Central Appraisal District, and the 2019 total should easily eclipse last year. Large commercial property owners are busy suing the CAD in district court to carve out their own Christmas presents with the equity appeal scam. Denton County homeowners, on the other hand, will be left with a lump of coal in their stockings this holiday season.

JENNA DUNCAN can be reached at 940-566-6889 and via Twitter at @jennafduncan.

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