The North Texas housing bubble was gasping for air in December. Inventory continued to dry up across the Dallas Fort Worth market, helping to push median and average home prices up 9.7 percent and 12.3 percent respectively. Prices on a per square foot basis hit fresh new highs in North Texas as 2020 came to a close. Ironically we saw a bevy of Federal Reserve officials calling for more inflation in the economy last week while home prices were posting double-digit year-over-year gains.
North Texas home sales were up 16 percent from December of 2019. Pending sales were 14 percent higher. At the recent pace of sales, there is only 1.3 months of supply in the DFW area. If you have been shopping out in the market, you know inventory is extremely sparse. Homes in the lower price points continue to get multiple offers. Many first-time home buyers are likely feeling dazed and confused with rampant inflation in the housing market. Home sellers have never had it better.
New home builders are doing their best to meet the demand for affordable new homes, but there’s only so much you can do when the Federal Reserve has torched the markets with $7.3 trillion in liquidity. Cheap land is a distant memory, and so builders keep shrinking lots and homesites to maintain the illusion of affordability. Even with the record low rates we experienced the past few weeks, that pitch is getting harder to sell.
The numbers for Denton County were indicative of the rest of the area, if not more absurd. While home prices in Denton County managed to hit new highs, the supply of resale homes on the market crashed to just 0.6 months. There’s barely a half month of existing home supply in Denton County Texas as of December. Overall supply is down to just 0.8 months. Median and average home prices in Denton County were up 9.2 percent and 9.8 percent respectively.
If you peak behind the numbers, you can see the cautionary writing on the wall. Denton County is a perfect example of what happens when your central bank blows an asset bubble in the middle of a global pandemic. While driving sales and prices through the roof, available inventory has crashed. As a result both closed and pending home sales are falling off in Denton County. Closed sales were up 7 percent last month, while pending sales were roughly 6 percent higher.
In places like the City of Denton where home prices are still below the DFW average, the inflation is more pronounced. Median and average home prices were up 10.7 percent and 13.2 percent respectively in December. In four of the last five months, Denton saw average prices above $300,000. Pretty impressive considering the average price of a Denton home was $272,176 in December 2019.
With nothing left for buyers to actually purchase, the inflation those Fed Officials keep asking for arrived in spades for the North Texas housing market. Ramping the Fed’s balance sheet up by over $3 trillion in a single year was the easy part. Now comes the bountiful harvest of consequences. What will the Fed do for an encore with rates in the basement and the current pace of $120 billion per month in Treasuries and mortgage backed securities purchases to keep the show going?
In a typical display of Federal Reserve Newspeak, Dallas Fed chair Robert Kaplan said we should be having a discussion about tapering QE later this year. Speaking at a virtual town hall event on January 11 2021 Kaplan expressed some slight concern about flooding the financial markets with cocaine and heroin after the horse has left the barn. If you don’t get that joke, it’s a reference to former Dallas Fed president, Richard Fisher, who actually went on CNBC in 2016 and said it, laughing about the Fed’s trickle-down monetary policies enriching Wall Street investors and speculators.
“later this year, my own view is we should at least be having an earnest discussion about when it’s appropriate to taper.” Robert Kaplan
The quantitative easing juicing the markets is currently much larger than the stimulus Fisher joked about in 2016. The Fed has unleashed all kinds of reckless speculation in the markets. Any real economic growth could force the Fed’s hands to pull back the reins, leading to a rise in real yields and rates. That’s a problem because the Fed has no plausible plan to extricate itself from perpetual intervention mode. In the meantime we are to be comforted by the fact that Kaplan and other Fed officials are thinking about thinking about raising rates at some point in the future.
Area home prices aren’t the only thing hitting new highs in 2021. Covid case numbers and fatalities are also at record levels for the state of Texas. Income and wealth inequality in the United States is off the charts as the Fed-fueled Covid “recovery” minted a stack of new billionaires and made our existing oligarchs even richer. Hope you don’t spend that $600 stimulus payment too fast. Better to save it for a down payment on a home, assuming you can still afford one.
With North Texas home prices posting double-digit price gains, remember that the inflation you are experiencing is just your imagination. That’s the story, and they are sticking to it.
There are 16,000 thousand fewer people in Denton County with jobs than what we saw a year ago, yet home prices are up nearly 10 percent during the same time period. Economists talking about organic economic growth and pent-up demand are America’s new comedians.
“Most of them became wealthy by being well connected and crooked. And they are creating a society in which they can commit hugely damaging economic crimes with impunity, and in which only children of the wealthy have the opportunity to become successful.” Charles Ferguson – Predator Nation
It’s worth pointing out the people put in charge of running the world’s most powerful central bank are not necessarily the smartest people in the room. The dismal science of economics (if you can even call it a science at all) often boils down to telling the markets or your audience what they want to hear. This is often the case with Federal Reserve chairs. Before he landed a very lucrative position at Citadel, Ben Bernanke contributed a number of memorable quotes leading up to the massive collapse of the world economy in 2008.
“given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable.” Ben Bernanke – May, 2007
Who are buying all these houses? Middle class families? Huge businesses? Californians?!
Upper middle class, out-of-state, all of the above. Top 10 percent has made out pretty well during the pandemic since many well-paying white-collar jobs have been unaffected by the pandemic. The service sector is of course a giant train wreck.