“Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing had happened.”
— Winston Churchill
Home sales in the city of Denton continued to slide in June. Closed sales were down 9% year over year. Pending contracts managed a 5% gain with inventory now rising quickly from the pandemic lows. Median and average home prices in Denton were up 19.9% and 17.6% from last year. That still leaves them below the highs we saw a few months ago. In terms of prices per square foot, average Denton home prices have dropped 7.5% from their peak back in March.
Home inventory in Denton continues to grow as the North Texas housing market stalls out with higher mortgage rates and a Fed tightening cycle. The number of homes for sale in Denton was up 51% from June of last year. Months of inventory has grown 67%. Good homes that are fairly priced are still selling, but it’s a dramatically different market than what we were experiencing earlier this year.
Denton County inventory is up 80% from a year ago. With the decline in sales, the number of months of inventory has spiked 90% from a year ago. Months of inventory for new construction in Denton County is up 15% from a year ago. That’s nothing compared with what’s going on in Prosper.
Home prices in Prosper skyrocketed to a ridiculous high in May, then subsequently collapsed over $125,000 last month as 6% mortgage rates sent them crashing back to reality. New home inventory in Prosper (months of inventory) is now the highest since the Great Recession back in 2007. People are finally questioning the sanity of spending exorbitant sums of money for shelter that was selling for 60-80% less before the pandemic.
Missing the market turn can be a costly mistake
As demand for expensive homes cools, builders are watching their customer waiting lists evaporate. Even here in Denton, new home communities that had large wait lists for customers are now offering commission bonuses to agents and generous closing-cost incentives for buyers. As demand continues to stagnate under the weight of tightening monetary policy, price cuts will follow.
Many real estate agents and sellers still haven’t gotten the memo. That’s why you see price cuts on more and more listings. We have officially reached the denial stage of the housing market correction. Many agents are telling sellers what they want to hear in order to get the listing, only to subsequently chop the asking price multiple times when the promised buyer doesn’t materialize. Some sellers are chasing the market lower after realizing they missed the market turn.
I have seen price reductions of 10-20% on some recent listings when the sellers and agents completely misjudged the market and what they are actually selling. What these agents aren’t telling their clients is that overpricing your home and missing the market is a perfect recipe for equity destruction. When the market is heading away from you, time is not your friend. Inventory, and the competition that comes with it, is growing by the day.
The inflated (empty) promises and listing price cuts will continue until it becomes clear to most sellers that the housing market correction is real. The price you can get for your home with rates at 6% is simply not the same as a market with rates below 3% and your central bank pumping $120 billion per month into the financial system. The golden goose has been cooked, flipped and manipulated into a colossal mess of unaffordable real estate.
I have been explaining the link between local home prices and monetary policy for some time now. In a not-so-ironic turn of events, Jerome Powell has made it clear inflation is now enemy No. 1 for the U.S. economy. Turns out the Federal Reserve has now admitted the pandemic real estate boom was fueled by cheap debt, not a lack of supply. This undeniable fact was obvious to anyone paying attention, but the real estate industry was busy selling the dream. If only we could just build more homes, they said.
Industry players and economists continue to talk up the housing “shortage” story as if it still has merit. It’s a particularly comical narrative with the number of housing units under construction at a record high. It’s even more laughable with inventory now spiking in markets across the U.S.
The problem was never due to a lack of construction. The problem was the overt financialization of the U.S. housing market and trillions of dollars in new stimulus chasing a finite stock of homes. That makes for a much less glamorous headline and sells fewer homes. The industry won’t tell you that perverse tax incentives for real estate investors and profiteers are still a major problem when it comes to the lack of affordable housing. The “solution” floated by industry players continues to be more housing construction so the financialization and profiteering can continue.
The media and real estate industry aren’t interested in those glaringly obvious facts. They’re interested in moving more homes, more mortgages, more debt — more financialization. And so, that’s what you’ve been fed for the last two years nonstop 24/7. Single-family rents were up 16% in Denton County for the month of June. That’s why real estate industry parasites are busy spinning the merits of build to rent. Who doesn’t love wealth inequality?
The rate drop that wasn’t
In another comical example of the financial media spin, industry players took a fake headline recently and ran with it for a 24-hour news cycle.
When seemingly favorable Freddie Mac mortgage survey results were printed on July 7, major media outlets ran with it. They failed to mention the Freddie Mac survey results are a lagging indicator of rates, and particularly misleading in a volatile market. The media headlines were so absurd, Mortgage News Daily addressed it with a specific post.
“This week’s misleading headlines are invariably a result of Freddie Mac’s weekly mortgage rate survey. This is the longest-running and one of the most highly regarded records of interest rate movement over time. A majority of news organizations rely on it as the primary source for their once-a-week coverage of rates.
“During more normal times, this strategy is good enough. The mainstream consumer of financial news doesn’t particularly need a new update on rates every day (unless they’re home shopping). And Freddie’s data does a great job of capturing the broad, long-term trends in rates.
“Unfortunately, it does a terrible job of capturing rate changes when bonds are experiencing high volatility, especially if that volatility occurs during the last 3 days of the week.”
If you are in the market to buy or sell a home, timely, accurate information is important. We are in a volatile market with a housing market correction in its early stages. Instead of reporting up-to-date factual information, industry players are grasping at straws to pump more sales. Last week ended with rates over 50 basis points higher than what was cited by many major media outlets.
So much for journalistic integrity.