Home prices soared again last month as Denton County home inventory appears to have bottomed at record lows. Updated data show 1.3 months of supply in Denton County and just 1.7 months of home supply in the DFW market. With inventory running on fumes, median and average prices in Denton County climbed 9.9 percent and 9.5 percent respectively. North Texas saw home price gains of 12.4 percent and 14.8 percent compared to a year ago as the average price of a DFW home eclipsed $360,000.

The reflation trade in the real estate market looks to carry us through the end of the year barring any unforeseen accidents. With the Fed’s balance sheet hitting a new record high of $7.243 trillion and mortgage rates sitting near record lows, it should come as no surprise that homes are still seeing strong demand in the market.

That means it’s still a great time to sell a North Texas home. In Denton County and many DFW submarkets available home inventory is still extremely thin. That’s helping drive up prices as the recovery from the pandemic progresses. The only remaining question is low long we can keep this up before things revert to normal. If you are looking for some clues, we may have just reached the limit on that euphoria gripping the housing market. Pending home sales in North Texas are now trailing closings. DFW saw a 22 percent increase in closings last month, with a 19 percent rise in pending sales.

Despite the bonanza for new home builders this year, existing home sales still comprise the bulk of transactions. To put things into perspective there were over 9950 resale closings last month in North Texas vs a little more than 1750 new home sales in DFW last month. Any rational builder is turning the dirt as fast as they can to produce sales, but there’s only so much affordable real estate to build on. New home builders have figured out they need to keep overall prices in check to keep the sales growth running so that’s what they’ve been doing.

Arlington-based D.R. Horton reported 4th quarter earnings today. The country’s largest builder posted a 26% jump in home closings for the fiscal quarter ending in September and a whopping 81% jump in net orders. For the year, D.R. Horton has sold 65,388 homes, a rise of 15% from the last year. Sales orders for fiscal 2020 increased 39% to 78,458 homes. Apparently $3 trillion in new Federal Reserve liquidity will go a long way toward stimulating new home sales.

If Horton’s numbers sound amazing, they’re really not when you look at the average prices. The average price of a new home closed for the quarter was $302,578. The average price of new home order received was just slightly higher at $307,611. By keeping average prices around the $300,000 mark, D.R. Horton has enjoyed a very good year as interest rates hit record lows. It’s not rocket science. It’s called affordability, and the builders who have seen the writing on the wall have seized the opportunity to sell a lot of new homes this year. If you saw the average piece of dirt many of these new homes are sitting on, you might be even less impressed.

The real test for the housing market will come if and when mortgage interest rates get back to somewhere near 4%. If that happens, watch out. This week we experienced one of the first flashing indicators of how fragile this housing market really is. With the sharp spike in Treasury yields this week near a measly 1 percent, housing related stocks saw a lot of red. Many housing related stocks are well off their highs last month, as hopes for additional stimulus from the Federal Reserve wane. Any significant rise in rates from this juncture will have negative implications for housing.

It took a lot of artificial liquidity to get us to this point in the housing market. It will take even more to levitate these inflated asset prices.

Fed Balance Sheet November 19 2020


U.S. Mortgage Interest Rates October 8 2020