The number of homes for sale in Denton County Texas is up 30 percent year-over-year in November. This is happening even as the number of closed sales in Denton County continues to decline. In Layman’s terms, the housing market has peaked in Denton County Texas. You know your real estate market is due for some softness when the Wall Street Journal explicitly tells you that the housing boom is over.
Looking at area inventory levels, you can see that home inventory has actually been rising for more than a year. This is true in Denton County, Texas, Collin County and in Dallas County. Here’s how the rise in available homes, and the increase in months of supply looks for all four areas.
- Denton County: Inventory up 30%, Months of supply up 35%
- Collin County: Inventory up 27%, Months of supply up 30%
- Dallas County: Inventory up 19%, Months of supply up 24%
- Tarrant County: Inventory up 17%, Months of supply up 15%
Mind you, these aren’t month-over-month comparisons. These are year-over-year comparisons, and the trend is not improving. While it’s too early to make a definitive read on actual closed sales in November, it is easy to tell that all three counties will post year-over-year sales declines in November. The good news is that A&M’s algorithm for late closings which was inflating the sales figures in the NTREIS press releases, does now appear to be fixed. The bad news is that you can expect more negative prints on home sales figures going forward, now that the echo-bubble in Dallas-Fort Worth real estate is starting to deflate. Notice I said “starting”. Updated data for October sales shows a 9 percent decline for single-family home sales in Denton County, and an 11 percent decline looking at single-family preowned/resale closings.
Contrary to the talking heads and real estate industry spokes-models, it is quite likely that this turn in the market is not a temporary glitch. The events last week in the markets and the Federal Reserve’s suddenly cautious shift in sentiment was an interesting tell. As Christopher Whalen noted, the Fed is getting spooked by recent spikes in corporate bond spreads, as well they should. The clueless economists at the Fed only partially understand the wreckage they have created. Aside from blowing another bubble in housing, they also blew one Hell of a bubble in corporate debt to go along with it.
I bring this up because Mr. Whalen also made a rather interesting reference to luxury housing which only validates my theory that high-end real estate in Dallas-Fort Worth is looking at a significant haircut in the not-too-distant future. His post is certainly worth a read. It is also worth noting that Tarrant County, with its lower median and average prices, is faring better than some other DFW submarkets. This is no surprise. When speculation gets exposed for what it is, people will revert to using homes for their primary intent which is end-user, owner-occupied shelter.
“Consider a home owner in CT or CA or NY who has a FICO score north of 800, seven figure income and a home that in theory is worth $5 million. At the moment, however, there is no bid near that valuation. The home has a 50% mortgage on an appraised value of $4.5 million and is being rented for less than half of the monthly carrying costs.
Q: How long will the affluent home owner fund the negative carry asset? A: We’ll find out. It’s called “strategic default” by the way.
Q: What is the true loan-to-value ratio of this mortgage? A: Higher than 50%.” Christopher Whalen – The Institutional Risk Analyst
If home inventory keeps climbing in Denton County, you can expect home price appreciation to disappear next year. In fact there are already several cities in the DFW area posting lower year-over-year average prices in November.
The Fed desperately wants to raise interest rates to give themselves room to cut them again when this latest bubble(s) comes unraveled. There balance sheet normalization and rate hike projections are already running into some serious problems. This is why Mr. Powell abruptly changed his tune last week. With all of this new debt being highly speculative and highly interest-rate sensitive it won’t take much to cause it to come cascading back down. This is why the carnival barkers at the FOMC are willing to cave at a moment’s notice should the stock market experience a significant decline beyond 10 percent. Once critical thresholds are breached, it won’t take much to get a 20 or even 30 percent decline on all of that paper “wealth”. Such a decline would obviously have negative consequences for expensive DFW real estate.
QE was never a permanent fix of system as it was advertised. It was just a giant can-kicking exercise.