A corona hangover is coming to the North Texas housing market. It’s not a question of if, but when. Texas posted a 3rd consecutive daily record yesterday for Covid-19 fatalities, and the 2nd wave of the coronavirus has put the reopening of the Texas economy on hold. The fall opening of schools and universities is becoming more problematic by the day. Anxiety is a now common theme because there are few good choices available when leaders at the Federal and state level have failed us in so many ways.

North Texas home sales rebounded sharply in June, rising 14 percent after sharp declines in April and May. Pending sales data indicate a 20 percent jump from last year, so we’ll likely see at least another month or two of strong home sales. Home prices hit new all-time highs in June across the Dallas-Fort Worth area, including Denton County. The price per square foot for a DFW home (new or resale) has never been higher.

You might be wondering how home prices could be at record highs in the middle of a pandemic while nearly 50 million Americans have filed for weekly unemployment claims this year. In these late stages of the larger economic cycle it’s all about keeping up appearances, particularly in an election year. With the coronavirus exposing the fragility of the U.S. economy (and particularly the U.S. healthcare system) the Federal Reserve flooded the markets with liquidity to save the day. The Covid-19 bailouts brought the speculators off the bench and back into the game. Rather than allowing the market to clear, the Fed once again interjected itself as the buyer of last resort, bailing out corporations, hedge funds and even many of our seriously conflicted Congress critters.

When you combine the unprecedented amount of stimulus from the Federal Reserve and Treasury with a limited amount of affordable housing stock, you get home price inflation. That’s exactly what we’ve seen this summer in Denton County and the North Texas housing market. With their stock portfolios backstopped by the Fed, Robinhooders, home flippers and speculators are back in the housing market bidding up the price of available homes.

New home builders have seized the opportunity laid at their doorstep to unload a lot of new homes this summer at record high prices. While the overall median and average price of a new DFW home still shows to be in a downtrend, the price per square foot jumped to new record highs in June. Receiving less actual real estate for your money is now considered an economic recovery. Go figure!

DFW New Home Price Per Square Foot June 2020

With the Cares Act stimulus approaching an end, Congress is now under the gun to keep the dream alive and maintain the appearance of an economic recovery built largely on government assistance payments. Continued unemployment claims in the U.S. are still close to 20 million. 1.31 million Americans filed for unemployment in just the last week alone, and there are still 32 million Americans receiving some form of state or federal unemployment assistance.

The Fed’s massive balance sheet blowup has managed to keep things stitched together, but the Federal Reserve continues to fuel wealth and income inequality. The velocity of M2 money stock continues to fall, with more money sitting in the pockets of fewer people. The 4th week of marginal balance sheet shrinkage barely even registers on the chart below. The recent stock market rally depends on the Fed maintaining that bloated balance sheet, still at $6.92 trillion.

Dr. Lacy Hunt and Van Hoisington elaborated the folly of the Federal Reserve’s corporate bond buying program, the continued fiscal mismanagement of American companies and the growing pile of debt in their second quarter economic overview. The debt obligations are set to grow even larger with a 2nd Congressional stimulus package being negotiated to prop up our flailing economy.

Fed Balance Sheet vs M2 Velocity July 8 2020

The rate on a 30-year fixed rate mortgage in the U.S. hit another record low this week. 2 percent 30-year mortgages are now a real possibility, something many experts would have scoffed at just a few years ago.

30-Year Mortgage Interest Rate July 9 2020

Coming out of the pandemic lockdowns, buyers were rushing to find a home, competing for an already limited supply of affordable housing stock. Home inventory levels have been plummeting as a result. Closed sales of new construction in the DFW area were up 24% in June. Pending sales (contracts) for new construction skyrocketed 50% from June of last year. With inventory being depleted at such a rapid pace, the momentum for the North Texas housing market will fade away like those pandemic unemployment assistance checks. The sharp decline in new home inventory could be particularly problematic for sales in the latter part of the year. New home sales were helping to boost overall sales, but affordable new housing stock is already looking rather thin. Anyone whose been out shopping for a home will tell you as much.

DFW Months of Home Inventory June 2020

If you are in the market to buy or sell a home realize the pandemic-Fed-distorted housing market for what it is. It may take some time for things to wash out, but if history is any guide the hangover is still coming. With each attempt to forestall the market cycle, the Federal Reserve is simply throwing more weight onto an unbalanced structure. The foundation of the housing market constructed/facilitated by the Fed is not as solid as some would have you believe.