Denton County experienced a big drop in home sales last month as available inventory dried up. North Texas home sales declined by 13% compared to February of last year. Pending home sales in Denton County fell 20% from the same time a year ago. The supply of homes has never been lower, according to NTREIS statistics going back 20 years. Average home prices in Denton County rose 17.1% to a record high of $411,546.
The city of Denton saw sales plummet 19% with pending sales slipping by 18%. The median price of a Denton home rose 12.3% to a record $289,900. Average prices in Denton fell just short of a new high, rising 11.6% to $311,270. Available home inventory in the city of Denton nosedived 72% from last year. It now stands at just 0.6 months of supply.
For those old enough to experience/appreciate a full market cycle, those are insane numbers. The Fed-fueled mania gripping the local real estate market is now left searching for support at grossly distorted levels.
According to the latest CPI figures just released by the Bureau of Labor Statistics, the consumer price index for shelter rose 0.2% in February and was up 1.5% over the 12-month period. Meanwhile, on planet Earth, the median price of a Dallas-Fort Worth home rose 14% from a year ago to a record $302,000. The average price of a North Texas home rose 21.4% in February to a record $384,231. Nope, no inflation there.
The Federal Reserve’s multitrillion-dollar trickle-down COVID experiment unleashed all sorts of chaos in the North Texas real estate market. It turns out $3.5 trillion in additional liquidity injected into a corrupt financial system is actually inflationary for real estate. Who could have known? What comes next will be interesting. The Powell Fed has managed to back itself into a corner again. The bond markets are smelling a rat, and the real estate market is too.
Mortgage interest rates bottomed earlier in the year, and are now well off of recent lows. The average contract interest rate on a purchase mortgage was 3.26%, according to the Mortgage Bankers Association’s latest weekly survey. Those are the highest rates since last July and a 40-basis-point rise from the start of the year. It’s important to note rates have been rising even though the Fed is still engaged in $120 billion per month in Treasury and mortgage-backed securities asset purchases.
I was warning about a similar setup back in 2018. For those who remember, the Fed was in the midst of quantitative tightening during 2018, shedding $50 billion per month from their massive balance sheet. Things were going pretty well for a few months, until chaos ensued in the fourth quarter. Mortgage rates were approaching 5% and the stock market puked 20 percentage points from the S&P index before the Fed threw in the towel and said no mas.
In layman’s terms, the housing market was rolling over with 5% mortgage rates back in 2018. The breaking point/threshold is now lower thanks to the Fed and their spectacular efforts to prop up Wall Street during the pandemic. Housing industry pundits, particularly those parading as professional economists, are waking up to the prospects of inflation. Officials at the Fed have taken notice too. Yields on benchmark U.S. Treasury securities have moved up to critical levels.
The law of diminishing returns is still in effect. Every subsequent Fed liquidity injection (aka QE), requires more and more intervention to maintain the everything asset bubble it has created. We’ve apparently entered the realm of continuous intervention to keep the paint from peeling off. The fate of the Denton-area housing market rests upon the shoulders of the Fed and the distortions they created.
Buckle up. It could be a bumpy ride.
“Major commercial and investment banks — and the hedge funds that ran alongside them — were the big beneficiaries of the twin housing and equity-market bubbles of this decade, their profits fed by an ever-increasing volume of transactions founded on a relatively small base of actual physical assets. Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear. Recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.”
— Simon Johnson, “The Quiet Coup,” The Atlantic