North Texas home sales have tapered before the Federal Reserve. The stellar spring selling season is gone, and now we just have the record high prices along with limited inventory. NTREIS stats show that home sales across the Dallas-Fort Worth area declined for the second month in a row in July. Closed sales were down 15 percent, and pending sales were 10 percent lower. After setting records in June, it appears area home prices have also peaked for the time being. Median and average home prices in North Texas slipped last month but were still up 17.3% and 18.3% from a year ago.

I have been carefully watching the inventory situation, and it appears the manic frenzy for homes is finally abating. After bottoming in the spring, the number of home listings continues to grow. A typical fall seasonal slowdown could help to improve supply even more. The number of homes for sale in North Texas grew by over 2500 from June to July, representing a roughly 17 percent monthly increase. We’re still at only 1.5 months of supply (about half of normal), but we’re headed in the right direction with supply numbers.

Areas like Denton County, where the demand for suburban homes has been stronger, are now seeing sharper drops in sales because of the massive runup and all of the demand which was pulled for ward by Covid, and the Federal Reserve’s stimulus. Home sales dropped 21 percent last month in Denton County. Pending sales were 15 percent lower. Resale inventory in Denton County has now doubled from the record lows seen in February. We currently have a month of supply instead of two weeks and 1200 resale homes available instead of 600. While average home prices were up 23 percent from last year, we finally experienced a month-over-month decline with prices.

The new home market is still very tight. The supply of new construction ticked up slightly from the record low last month, but Denton County had only 350 new homes available for sale in July. That translates to just 1.4 months of supply, a far cry from the historical trend of 4 months of supply.

As the market continues to adjust, builders will finally see some competition for their product again. That should cool some of the ridiculous activity we’ve experienced this year. Some builders have taken advantage of the rare opportunity with outsized leverage in terms of pricing power and demand. This has no doubt resulted in some really bad deals for buyers caught up in the FOMO (fear of missing out) trade. Can you spell buyer’s remorse?

I can’t think of a better example of buyer’s remorse waiting in the wings than this chart of McKinney Texas home prices…

McKinney Texas Price Per Square Foot July 2021

The Fed has continued to ignore rampant asset price inflation this year. The Bureau of Labor Statistics official made-up version of shelter inflation showed only a 2.8 percent yearly increase for July. Apparently the BLS didn’t interview too many actual renters with their surveys. MLS data show average rental prices in Denton County Texas rose from $2041 last summer to $2343 in July 2021. That’s a 14.8 percent rise in the cost of leasing a home. The government’s official measure of shelter inflation continues to be an insult to your intelligence.

As Powell and the Federal Reserve continue to peer over the wreckage they have created within the economy, it will be interesting to watch Jerome and company taper their way to a soft landing. By continuing monthly asset purchase of $120 billion per month far longer than was needed, inflation is now firmly embedded within the economy. See gross distortions in the labor market as another unfortunate consequence of the Fed’s interventions.

Mortgage interest rates are still near record lows and equity prices are at all-time highs, along with home prices. With so much demand pulled forward, it’s going to be very challenging for the Federal Reserve to pull back the punchbowl. The Fed made a feeble attempt at normalization back in 2018 and failed miserably. The balance sheet is now more than twice as large, with a good chuck of that liquidity fueling crazy home price inflation during the past year. Many sellers made out like bandits. For a number of recent buyers, the headaches are probably just beginning.

Federal Reserve Assets August 4 2021

As the Fed keeps priming the pump to inflate the debt away, they are also burying consumers and savers with currency debasement. The loss of consumer purchasing power is definitely not transitory.

Purchasing Power U.S. Consumer Dollar July 2021