The DFW housing market is reflating on borrowed time, and it will soon hit the wall again. North Texas home sales jumped roughly 8 percent in October, while Dallas-Fort Worth home prices experienced some of the best gains in 2 years. Pending sales for October were also higher, indicating we’ll likely be able to finish out the year on a positive note for the housing market. This may seem like great news for housing market aficionados and the area’s largest paper, but things will soon get interesting as the parlor trick of plunging mortgage rates in 2019 becomes apparent.
Don’t get me started on the Dallas Morning News’ puff piece on October home sales which advertised a doubled digit increase in sales which didn’t happen. Steve Brown seems to have a special knack for taking the puffed up NTREIS (A&M RECenter) press release numbers and twisting them even further into a magical work of fiction. Sorry Steve, but North Texas agents didn’t sell almost 9100 “preowned” single-family homes in October. DFW resale single-family closings in October look to be closer to 7500. It was still a great month for sales, but don’t call yourself an editor if you can’t get your facts straight.
While Dallas-Fort Worth home sales and prices were continuing to reflate last month, Denton County managed to eclipse previous records with even more impressive growth. Looking at the 12-month rolling average for sales, DFW still hasn’t taken out the previous cycle highs. Denton County has knocked it out of the park, as a resurgence in new home sales has helped to fuel the rebounding housing market. Denton County saw a 17 percent rise in closed sales in October, while pending homes sales were also higher by about half that percentage increase. The average price of a home in Denton County rose 3.7 percent in October, less than the 5.5 percent increase for the DFW area.
New home sales continued to lead the housing rebound in the Dallas-Fort Worth area in October. New construction sales were up by roughly 16% while average new home prices fell 3.2 percent. New home sales jumped over 20 percent in Denton County last month. The rolling average for new home prices continues to trend downward from the summer 2017 peak, and that is helping to boost sales. The resale market (the bulk of sales) experienced a 6 percent increase in volume in October, while average prices jumped 7.1 percent.
What I am watching very closely are the pending sales numbers. It looks like pending sales for the DFW area were about 8 percent higher last month, but not the double digit increase reported in the media. Remember those are “statistical estimates”, and the sooner they rush to print them, the worse they often get. While the media pundits are apparently surprised by the October sales jump, what they are failing to disclose or appreciate is the ridiculously easy comparison to last year.
The reason home sales were still rebounding in October is because mortgage interest rates were 114 basis points lower than the same time a year ago. This is the easiest year-over-year comparison we’ve had in recent memory, but the clock is ticking.
Home sales for North Texas began tanking in September 2018, and they didn’t rebound until February of this year…after it became clear the Federal Reserve was going to completely cave on normalizing policy. A few months of repo madness and three interest rate cuts later, here we are with the Fed now staring down the barrel of their own credibility trap. For all of their public PR about having learned the lessons of past mistakes, Jerome Powell and the FOMC officials haven’t learned a damn thing. They are still bailing out Wall Street at every turn and enriching the 1 percent with ever more trickle-down stimulus.
The Powell Fed is reflating asset prices, including DFW real estate in an effort to prolong “the economic expansion”. What they won’t publicly admit is that they are just intensifying the bifurcation of the U.S. housing market while making America’s income and wealth inequality problem even worse. Do they care? Of course not. It’s monetary policy by the rich for the rich 24-7. The ruse of stable prices and full employment is just convenient distraction provided to the public to keep the pitchforks at bay. If the American people, and Congress in particular, had a real understanding of what the Federal Reserve is doing, the Marriner Eccles building would have been shuttered a long time ago. In our world of endless distraction and misdirection, the show goes on.
For at least another month or two, it looks like the North Texas real estate reflation scheme still has legs. Come January, the year-over-year comparisons are going to get much more difficult. That’s the nature of the Fed’s credibility trap. They keep kicking the can down the road to sustain the “recovery”, but the law of diminishing returns requires more and more stimulus to keep the scam going. As I have said before, the Fed can delay the completion of the business cycle, but they can’t prevent it.
While many pundits in the real estate sector were worrying about higher interest rates, they weren’t paying attention to what is actually happening in the U.S. economy. Rates are low because they have to be unless Trump and the Powell Fed want to see the wheels fall of the wagon. Even after three Fed rate cuts this year, the interest on the spiraling U.S. national debt is reaching epic new heights. To maintain appearances on that $23 trillion national debt, it now costs American taxpayers close to $600 billion per year to maintain the annual fiscal profligacy enabled by Trump and a complicit Congress.
While Powell may have temporarily uninverted the yield curve, the Fed has erased virtually all of the quantitative tightening which occurred during the first half of 2019. Primary dealers like JPMorgan and others took their toys home this fall and decided not to play in the overnight repo sandbox. At the same time they were also pushing for looser regulations to distract from their real efforts to game the system. The Fed’s balance sheet is now back above $4 trillion after the crybabies on Wall Street pleaded for more free money.