The Denton housing market remains on solid footing to end the year. Home sales rose 12% in October in the city of Denton while pending sales increased by over 30% compared with last year. The continued demand for homes cut months of supply in Denton by half compared with October 2019, down to just 1.4 months. The median price of a Denton home was up 5.8% to $271,000. The average price in Denton jumped 10.8% to $306,652. Send your thank you cards to the Marriner Eccles building and Jerome Powell of the Federal Reserve.
Prices in Denton County hit new highs, but home inventory appears to have bottomed at these record lows. We’re sitting on just 1.4 months of supply in Denton County and 1.9 months of home supply in the greater Dallas-Fort Worth market. With inventory running on fumes, median and average prices in Denton County climbed 10.1% and 9.9% respectively. The DFW area saw home price gains of 12.4% and 14.9% compared with a year ago as the average price of a DFW home eclipsed $360,000.
Demand in the housing market should carry us through the end of the year barring any unforeseen accidents. The Fed’s balance sheet still is above $7 trillion. Despite some volatility this week, mortgage rates are still near record lows.
It’s still a great time to sell a North Texas home. In Denton County and many DFW submarkets, available home inventory is extremely thin. That is helping drive up prices as the recovery from the pandemic progresses. My office picked up several new listings this month, so I will be working to help these homeowners pocket these recent equity gains.
If you are looking for some clues as to how long the stellar housing market will last, we may have reached the limit on the euphoria gripping the housing market. Time will tell. Pending home sales in the Dallas-Fort Worth area offer a forward-looking indicator. Pending sales (contracts) for the DFW market will be flat to slightly negative for October despite a 15% rise in closings last month.
With homes getting snatched up as fast as they hit the market, the party had to end sometime. The party for the resale market is waning because there are no longer enough affordable homes available to purchase. Pending contracts of existing homes in North Texas dropped 5% last month, dragging down overall contract activity. Things are still humming for new home builders. Contracts for new construction rose 23% last month.
Despite the bonanza for new home builders this year, existing home sales still comprise the bulk of transactions in the market. To put things into perspective, there were over 9,200 resale closings last month in North Texas vs. maybe 1,600 new home sales in DFW last month. Any rational builder is turning the dirt as fast as they can to produce sales, but there’s only so much affordable real estate to build on. New home builders have figured out they need to keep overall prices in check to keep the sales growth running, so that’s what they’ve been doing.
Arlington-based D.R. Horton recently reported fourth-quarter earnings. The country’s largest builder posted a 26% jump in home closings for the fiscal quarter ending in September and a whopping 81% jump in net orders. For the year, D.R. Horton has sold 65,388 homes, a rise of 15% from last year. Sales orders for fiscal 2020 increased 39% to 78,458 homes. Apparently, $3 trillion in new Federal Reserve liquidity will go a long way toward stimulating new home sales.
Horton’s numbers sound amazing at first glance. They’re really not when you look at the average prices. The average price of a new home closed for the quarter was $302,578. The average price of a new home order received was just slightly higher at $307,611. By keeping average prices around the $300,000 mark, D.R. Horton has enjoyed a very good year as interest rates hit record lows. It’s not rocket science. It’s called affordability, and the builders who have seen the writing on the wall have seized the opportunity to sell a lot of new homes this year. The average piece of dirt many of these new homes are sitting on makes the growth even less impressive. They call it “real” estate for a reason.
The real test for the housing market will come if and when mortgage interest rates get back to somewhere near 4%. Any reversal of the Fed’s liquidity firehouse will likely be problematic. This week, we experienced one of the first flashing indicators of how fragile this housing market really is. With the sharp spike in Treasury yields this week near a measly 1%, housing-related stocks were whipsawed. Most housing-related stocks are still off their recent highs last month, as hopes for additional stimulus from the Federal Reserve remain in limbo.
It took a lot of artificial liquidity to get us to this point in the housing market. It will take even more to levitate these inflated asset prices.