Denton County home sales enjoyed a continued spring rebound in April as low mortgage rates fueled strong demand for new homes and improved affordability for prospective buyers. Home sales in Denton County jumped 7 percent from the same time last year, better than the 3 percent gain seen in the DFW area during April. The average price of a Denton County home declined just slightly in April to roughly $358,000. Closings of new construction rose 13 percent while sales of used homes improved 6 percent. Home sales in the City of Denton rose about 2 percent in April. The average home prices in Denton declined by 2 percent compared to April of last year to $271,000.
For practical purposes it would appear that the spring home selling season has been rescued by the significant drop in mortgage interest rates. Home sales in Denton County also fared better than the Dallas-Fort Worth area because average home prices remained stable compared to last year, as in zero growth. Improved affordability has been the driver behind the sales rebound during the last few months. It is worth noting that today’s mortgage rates are roughly 40 basis points lower than where they stood a year ago.
The big drop in rates and the recent stabilization just above 4 percent is also why pending home sales activity cooled in April. While the official press release from Texas A&M estimates a 2 percent increase in pending sales for North Texas during April, the actual Trends data indicates relatively flat pending contract activity. Pending contract activity in the City of Denton slid about 7 percent in April.
For better or worse, North Texas home sales likely peaked out a bit earlier than normal this year due to the Federal Reserve jawboning the markets higher and capitulating on policy. Contrary to real estate industry pundits, the drop in mortgage rates appears to have run its course. It will be interesting to see how sales perform during the second half of the year. The year-over-year comparison for rates will likely be favorable, but there was also a significant portion of demand pulled forward into the first quarter. Industry pundits will likely cheer the last two months as a return to a normal market. Do not be fooled. Real estate markets move slowly, and it can take years for a correction to play out. The real estate market correction that started in North Texas last year is not over, not by a long shot.
Buyers remain highly sensitive to mortgage rates with prices at elevated levels. The housing market, like the larger economy, will not tolerate a rising rate environment. As we saw last year, the U.S. housing market completely rolled over when mortgage rates pushed toward 5 percent. There is simply too much debt in the system, and U.S. consumers are already drowning in higher interest payments, even with the Fed on hold in terms of future rate hikes.
Rates now have to stay low in order for the economy to avoid a number of unpleasant consequences. This is why you have the president calling for a full percentage point drop in rates and more quantitative easing from the Federal Reserve. U.S. consumers aren’t doing so well. Personal incomes have actually declined since last December, and losses for credit card companies are growing. Not surprisingly, the much-hyped tax cut did not trickle down to most working Americans. It looks like low rates are here to stay…to infinity and beyond.
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