Denton real estate market gets a breather on rates – Tyler Morning Telegraph

10 minutes, 29 seconds Read

The Federal Reserve and U.S. Treasury are taking a victory lap for conquering inflation. This has significant ramifications for the local housing market because the plane hasn’t landed yet. Home sales were still sluggish last month as prices remained elevated. Denton saw the weakest November for contract activity since 2013 as purchase contracts slid 8% year-over-year. Median prices were up 4% from last year, while average home prices rose 1%.

Zooming out to the broader county level, you can get a better picture of what’s been happening as higher rates eroded affordability. Average prices in Denton County slid for a fourth consecutive month. The average price of a Denton County home was $68,000 (11%) lower than the bubble peak of last spring.


Buy/sell, rent/lease residential &
commercials real estate properties.

The market is still constrained by a lack of affordable inventory. Homebuilders continue to capitalize on those supply constraints by making deals to find buyers. The November closing data shows incentives by some of the larger builders ranging from $20,000 to $40,000, accounting for both the incentives to buyers and the commission bonuses to selling agents. Many existing home sellers have pulled their homes from the market when faced with the challenge of competing against builders.

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The December report from Apartment List shows rents in the city of Denton are down 1% year-over-year. That’s little consolation for renters when actual rents are still 25% higher over the last three years. Rents for single-family homes in the city of Denton are 33% higher than where they stood in January 2020.

Fed and Treasury blink, proclaiming the end of inflation

The Fed and Treasury both blinked in the span of two months. Overall financial conditions are now more accommodative than when the Fed began hiking rates last year. The most recent quarterly refunding announcement from the U.S. Treasury erased a good portion of the Fed’s progress this year by goosing asset prices higher in November. The December Federal Open Market Committee policy statement showed Fed Chair Jerome Powell blinking as well. The Federal Reserve is now forecasting three rate cuts in 2024, while the market expects even more cuts.

The stock market responded by surging to a new record high. The Russell 2,000 stock index just made a round trip from a 52-week low to a 52-week high in the span of 48 days following the Janet Yellen pump and the Powell pivot. Roughly a third of the companies in the Russell index aren’t even profitable. That speaks to the level of speculation directly facilitated by Yellen and Powell over the last two months.

Mortgage rates have dropped over a full percentage point over the same period. That’s good news for prospective homebuyers. If you are in the market to buy a home, a window of opportunity has presented itself. That’s assuming you can find what you are looking for.

The flip side of these new market interventions is that the real estate market has not fully cleared the excesses and speculation. Affordable inventory is still a challenge for most buyers. The residential real estate market is a major pain point for consumer sentiment. You can rest assured this fact did not go unnoticed by the current administration. The obvious policy choice of stoking demand is a rather interesting way to address the problem considering the inherent risks.

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Priming the financial pump to inflate asset prices is a poor way to address the issues in the housing market, particularly if you want a healthy housing market. To get back to something approaching normal (with more normalized inventory levels and affordable prices), the Fed needs time for higher rates to do their work. As we saw in the fall of 2022, higher rates lead to more inventory and less speculation. The real estate and mortgage industries want no part of that.

The real estate industry has a natural bias toward higher prices. When provided with artificially low rates, it is also prone to speculation, hoarding and general financialization. According to the housing “experts,” all of the housing market’s problems will be solved by more construction. More construction and fewer regulations are the magic elixir sold to consumers. Massive levels of financialization and speculation are taboo conversation in most real estate industry circles, particularly among Fed apologists.

No recession yet

Americans are still finding jobs in a secularly tight labor market. The November employment report showed the official unemployment rate dipping to 3.7%. Hourly and weekly earnings rose in November. That’s good news for U.S. labor. Consumers are still spending. Core inflation for November remained stuck at 4%. That’s double the Fed’s supposed target. The Fed says it is data dependent, but recent data doesn’t support rate cuts. The Fed is baking them into the 2024 forecast anyway.

The U.S. now has a Cantillon effect economy. The top 1% of U.S. earners now have more wealth than the entire middle class. This comes at a time when North Texas retirees are being forced back into the workforce to cope with inflation. Texas food banks are still stressed with high demand. It’s almost like there are two different versions of the U.S. economy.

If you are in the market to buy or sell a home, be careful of agents and loan officers promising even lower rates next year. Buying the home and dating the rate can be a very enticing pitch. It can also be a dangerous assumption in a volatile market. No one has a crystal ball for the coming year. Anyone who says they do is lying.

For the soft-landing crowd, I will leave you with this.

The Federal Reserve is still holding $2.45 trillion (that’s trillion with a “T” and 12 zeros) of market-distorting mortgage-backed securities. The Powell Fed has managed to shed less than a third of the Treasury holdings it piled on during the pandemic-era stimulus. There is still a ton of liquidity sloshing around the financial system for the players with access to it. This is why inflation has remained sticky.

This post was originally published on this site

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