The Denton County housing market is now a dependent of the Fed. Over 3 $trillion in quantitative easing has ramped home prices to record highs while driving inventory to record lows. North Texas housing no longer resembles a normal market. Borrowers can now be in COVID mortgage forbearance for up to 15 months while the Fed is busy blowing another massive asset bubble. The American Enterprise Institute has called out the Federal Reserve for blatantly distorting the housing market, but the Fed is still flooding the system with liquidity. Some FOMC officials are calling for even more inflation.
North Texas housing statistics show just how out of touch Federal Reserve officials really are. Denton County home sales were up about 10 percent in January. Pending sales rose by a similar amount. The median price of a Denton County home rose 6.7 percent. The average price jumped 13.5 percent to a record high of $406,980. Prices per square foot reached new highs as well as buyers tossed out offers like Halloween candy last month. The supply of homes in Denton County plunged 69 percent to just 0.7 months. We’re down to just a half month of resale home inventory in Denton County Texas. That helps to explain the big rise in average prices.
America’s insatiable appetite for real estate during the pandemic has even caught the attention of network comedians. SNL recently mocked Americans stalking homes on the internet.
“The pleasure you once got from sex, now comes from looking at other people’s houses.”
The Fed-fueled ramp into the stratosphere has been a boon for home sellers and existing home owners. It has been a cruel joke for many buyers trying to find a decent, affordable home. If you are submitting an offer in the lower price bands, you are often wasting your time with a full price offer unless you have some additional sweeteners (all-cash, free leaseback, higher price etc). Millennials with little or no down payment are now spectators in a casino we’re calling a housing market. This has left many potential buyers chasing even more expensive new construction as the only available alternative to lock in a contract.
The real estate industry keeps talking about a lack of supply being the issue behind rampant home price inflation. These people are partially correct. There is definitely a supply issue, but the lack of supply isn’t in actual homes. There simply aren’t enough politicians or Federal Reserve officials who think it’s wrong to inflate their own portfolios at the expense of the next generation, or the bottom 90 percent of the current generation.
It’s a strange time to be alive when the stock market is hitting all-time highs while more than 8 million Americans fall into poverty. That’s the definition of a failed state, yet the Federal Reserve is still priming the pump. Millionaires and billionaires have never had it better. The ranks of under and unemployed Americans is still at crisis levels. According to the January employment report there are still 10.1 million Americans without a job. There are millions more who don’t earn a basic living wage. The real U.S. unemployment rate (listed as U-6 on the BLS tables) is still at 11.1%. It would be higher than that if it weren’t for millions of Americans simply dropping out of the labor force during the past few years.
The attached graphics speak for themselves. It has been an impressive ramp for the local housing market. With the Fed still pumping liquidity into the system it could get even crazier this spring. Mortgage rates are still near record lows.
Asset markets, and certainly the North Texas housing market, are now prisoners of the Fed’s massive $7.4 trillion balance sheet. The Fed’s only solution has been to keep printing more money and creating more debt. The Fed can’t shrink the balance sheet without a number of nasty consequences.
The longer the Fed keeps distorting the market, the further it detaches from long-term fundamentals. This going to make for some interesting discussion and policy in the years ahead. Boomers have been big recipients of the Fed’s asset inflation mechanisms. Many millennials have been buried by those same policies.
U.S. consumers, and particularly U.S. labor, are still getting buried by a mountain of stagflation as the Fed destroys the value of the currency. This is what happened when government apparatchiks made the grand bargain to trade factories for finance. The era of big finance and crony capitalism has resulted in a modern feudalist economy in the U.S.
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