Denton and Collin County continue to suffer from declining home affordability. A recent Q1 2018 report from Attom Data Solutions shows that several North Texas housing markets saw worsening affordability rankings compared to last year. Grayson and Ellis Counties were near the top of the list of the most unaffordable counties in the U.S. to buy a home based local home prices and weekly average wages. Grayson and Ellis rank high on the list due to the relatively low average wages and the recent bout of home price inflation that has far exceeded wage gains.

Denton and Collin County also rank relatively high on the list of unaffordable housing markets due to big increases in local home prices during the past few years. True the average wages are a bit higher, but salary increases have certainly not kept pace with the increase in Denton and Collin County where demand for homes is high and the supply is relatively constrained. Builders can’t put homes on the ground fast enough, and when they do they really can’t build homes cheap enough to match current buyer preferences.

This is the inevitable result of the Federal Reserve’s bubble-blowing balance sheet expansion and suppression of interest rates since the Great Recession. According to this recent affordability report it takes over 40% of average incomes in Denton and Collin County to buy a home. This is assuming some very generous qualification conditions with only a 3 percent down payment!

If you sit back and ponder this situation for a minute, this helps to understand why mortgage interest rates aren’t still shooting to the moon and why Treasury yields have cooled during the past week or two, with the 10-year yield closing below 2.75% last week. The average interest rate on a 30-year fixed rate mortgage was at 4.44 percent last week. Rates have to stay low for the U.S. housing market not to fall flat on its face with prices at elevated levels.

The weak underlying economic backdrop is a big reason why the Treasury yield curve has resumed its decline recently. The economy/demand is not as strong as reported, and home prices are now once again at nose bleed levels in many U.S. markets, including Denton and Collin Counties.

While many real estate industry “experts” continue to deny the evidence of a housing bubble, there is plenty of evidence if you are willing to look. The spectacular surge in DFW home prices has been built on the back of unprecedented financial market interventions, including a massive $5 trillion in international market injections from 2016 to today. Those who dismiss the fact that local home prices were juiced by Federal Reserve market interventions do so at their own peril. It is no coincidence that stock market indices are wobbling lower as the the Fed reduces its balance sheet while raising interest rates. What goes up, can come down. That includes DFW home prices.

The current unaffordability of some North Texas homes could actually be underestimated. The recent tax cut gimmick passed by Congress is being exposed as a giant fraud benefiting corporations and the wealthy. This is going to put additional strain on average home buyers subject to expensive Texas property taxes with the recent rise in home values. Actual closed median prices in Denton County during the first quarter of 2018 are also much higher than the numbers noted in the Attom report. NTREIS data for March 2018 home sales showed the median price of a Denton County home at $318,935. In nearby Collin County the median sold price last month shows to be $335,000! Attom is undershooting real prices in these areas.

The good news is that job creation in the DFW area has continued to support growth of the local housing market. Net population inflows into Denton and Collin County have been strong. That being said, an economic recession could certainly cause a decline in employment growth and a shift in the demand for local homes. Thanks to the continued mismanagement of the economy by Federal Reserve “experts”, a recession could arrive sooner than many people are expecting.

If you are asking many local real estate professionals whether DFW housing is in a bubble or not, pay close attention to how they justify their answer. As Upton Sinclair famously said:

“It’s difficult to get a man to understand something, when his salary depends upon his not understanding it.”