“We’re not even thinking about thinking about raising rates.”
— Jerome Powell, chair of the Federal Reserve, June 10
Denton home sales rose 10% last month as record low mortgage rates and unprecedented stimulus from the Fed fueled a temporary coronavirus rebound for the housing market. Median and average prices rose just slightly at $265,000 and $285,439, respectively. Pending sales of Denton homes jumped 13%, suggesting the rebound could continue through summer. Months of supply plunged 38% to just 1.8 months.
North Texas home sales rebounded sharply in June, rising 14% after sharp declines in April and May. Pending sales data indicate a 20% jump from last year, so we can expect another month or two of strong home sales. After that, depleted inventory levels could dampen sales. Due to COVID-19 lockdowns, home inventory is still running at abnormally low levels across the Dallas-Fort Worth area, and that has fueled bidding wars for properties in lower price ranges, along with a return of speculation in the housing market.
Home prices were hitting new all-time highs in June across various North Texas submarkets, including Denton County. The price per square foot for a DFW home (new or resale) has never been higher.
You could be excused for wondering how home prices could be at record highs after nearly 50 million Americans have filed for weekly unemployment claims. The answer lies in the Federal Reserve’s liquidity fire hose. The coronavirus exposed the fragility of the U.S. economy (and particularly the U.S. health care system) and the Federal Reserve responded by flooding the markets with liquidity to bail out banks and wealthy investors.
The bailouts brought the speculators off the bench and back into the housing market. Rather than allowing the market to clear, the Fed once again interjected itself as the buyer of last resort, bailing out corporations, hedge funds and even many of our seriously conflicted Congress critters.
When you combine the unprecedented amount of Fed stimulus with a limited amount of affordable home inventory, you get home price inflation. That’s exactly what we’ve seen this summer in Denton County. With their stock portfolios backstopped by the Fed, home flippers and speculators are back in the housing market, bidding up the prices of available homes.
New home builders continue to do well during the coronavirus rebound, capitalizing on the limited supply of local resale properties to unload a lot of new construction at record high prices. While overall median and average prices of new DFW homes still show to be in a downtrend, the price per square foot jumped to new record highs in June. Receiving less actual real estate for your money is now considered an economic recovery. Go figure!
Closed sales of new construction in the Dallas-Fort Worth area were up 24% in June. Pending sales (contracts) for new construction skyrocketed 51% from June of last year. With inventory being depleted at such a rapid pace, the momentum for the North Texas housing market could fade away like those pandemic unemployment assistance checks. The sustainability of the recent sales rebound will depend on the supply of affordable homes.
Congress is now under the gun to extend unemployment benefits to keep the recovery from falling apart. The pandemic assistance payments that are paying many people more than their previous jobs are likely coming to an end later this month. Continued unemployment claims in the U.S. are still close to 20 million, so there is a lot at stake for the economy.
The Fed’s massive balance sheet expansion managed to save the bacon of a lot of investors, but the Powell Fed is also fueling massive wealth and income inequality, as evidenced by the continued decline in the velocity of M2 money stock. More money sitting in the pockets of fewer people means that money turns over less frequently.
Economists Lacy Hunt and Van Hoisington described the headwinds facing the U.S. economy going forward, including the folly of the Fed’s corporate bond buying program, continued fiscal mismanagement by U.S. companies and the growing pile of debt in their second-quarter economic overview. Those debt obligations and fiscal deficits are going to grow even larger with a second congressional stimulus package waiting in the wings.
The rate on a 30-year fixed rate mortgage in the U.S. hit another record low this month. A sub-3% 30-year mortgage is now a real thing, something many experts would have scoffed at just a few years ago. Such low rates are a reflection of the underlying strength of the U.S. economy.
If you are in the market to buy or sell a home, be mindful of the distortions and market dislocations created by unprecedented central bank intervention. There’s a reason CoreLogic is forecasting a 6.6% decline in national home prices by May of next year. That would be the first decline in home prices on a national level in nine years. CoreLogic’s Market Risk Indicator is predicting 125 metro areas have at least a 75% probability of a price decline by May 2021. Their reasoning is simple. By the end of the summer, buyer demand will likely slacken as the unemployment crisis comes into broader view and the economic slowdown continues.
The Fed has done a great job at making America’s billionaires even richer than they were before the pandemic. Unfortunately, their public messaging of full employment and stable prices has been nothing but empty rhetoric. The Federal Reserve has also destroyed the concept of affordable housing in its all-out effort to protect wealthy investors. If you were out shopping for a home this summer, you can probably relate.