The National Association of Realtors reported pending home sales for November slid 7.7 percent compared to a year ago. Of course the headline you probably saw in the media was the 0.7 percent drop compared to October’s decline in contract signings. With the stock market poised to finish one of the worst Decembers in recent memory, you can rest assured the hyper-financialized Dallas-Fort Worth housing market is going to get worse before it fully recovers.
Chief economist, Lawrence Yun, attempted to diffuse concerns about sliding sales numbers in November in NAR’s latest press release, but the housing market still isn’t buying it. November marked the 11th consecutive month of year-over-year contract activity decreases.
Here were some of Yun’s more interesting soundbites attempting to explain the decline in real estate contract activity.
“The latest decline in contract signings implies more short-term pullback in the housing sector and does not yet capture the impact of recent favorable conditions of mortgage rates.”
“Land cost is expensive, and zoning regulations are too stringent. Therefore, local officials should consider ways to boost local supply; if not, they risk seeing population migrating to neighboring states and away from the West Coast.”
Yun suggested that while contract activity has reached its lowest level since 2014, there is no reason to be overly concerned. Yun is still predicting solid growth potential for the long-term. I wonder what he will be saying when the December pending sales data hits the tape? He will likely mention the “long-term” growth potential again, because when the tape prints for December a lot more of the so-called “professionals” are going to be working overtime attempting to downplay the housing market decline.
What Yun and many of the supposedly expert economists are discounting/ignoring is the complete financialization of the U.S. housing market. The housing market no longer functions as a store of value for end-user owner occupants. The housing market has become the Federal Reserve’s of Frankenstein facsimile of a housing market, dependent on ultra-low interest rates and endless liquidity. Like the stock market, it was way overdue for a correction. The correction received its marching papers the minute the Fed reversed course and began normalizing that massive balance sheet. Recent interest rate hikes are akin to a double-reversal of stimulus.
Even with the recent decrease in mortgage interest rates, they are still about 50 basis points higher than where we were in January. At the start of the year, higher interest rates and low inventory were being blamed for the January sales slide. The number of homes for sale has marched higher, a lot higher in many submarkets. Low inventory is certainly not a problem, and sales are still sliding. What Yun and most of the “experts” regurgitating real estate industry spin are not telling you is the fact that the housing market’s goose has already been cooked.
The correlation between inventory and sales that you often see floated in the media is largely a work of fiction. Home sales can and DO fall while inventory is rising. Take the last housing collapse as a perfect example. Home sales are ultimately the product of end-user demand and the confidence that buyers have to incur long-term debt obligations like a 30-year mortgage. In it would appear that debt is suddenly beginning to matter again, and it will likely be a prominent theme in 2019.
Similar to the Great Recession a decade ago when the Fed began hiking rates into a massive subprime real estate bubble, they are again hiking rates into an asset bubble. This time around, however, the asset bubble is actually many different bubbles spread among multiple sectors. The asset mix is definitely different, but the end result will probably end up looking vaguely familiar.
Dallas-Fort Worth is not insulated or immune, and this will likely become more clear as this new mix of asset bubbles deflates. The pending sales activity for December will likely reflect exactly what I have been concerned about. The housing market is now intricately tied to the fortunes of a massive pile of paper wealth which has been levitated by the Federal Reserve and the printing presses of other major central banks. When people open up their 401K statements for December, this will become painfully clear. December was likely just a warning of what is in store.
The shills for the DFW real estate market will likely keep floating all kinds of excuses as to why this time is different or why we are experiencing a temporary blip in an otherwise stabilizing market. Some will even print ridiculous falsehoods about what constitutes an affordable Dallas-Fort Worth home.
Earlier this year I warned readers that the home sales numbers in North Texas were being inflated by a bad algorithm coming out of the Texas A&M RECenter. When you see the pending sales numbers for December with the more accurate, improved algorithm, those moderately puffed sales stats that DFW was being spoon-fed by a clueless, asleep-at-the-wheel media for years will be the least of our worries. Solid employment growth in the Dallas-Fort Worth area is still holding up an inflated housing market, but DFW’s job engine is also cooling. The winds of change are blowing, and a winter chill is likely coming with it.
Here’s a clip of Lawrence Yun, or maybe Steve Brown from the Dallas Morning News, telling us that everything is fine with the local housing market.