Denton County’s pandemic-induced housing bubble is finally beginning to pop. The summer selling season has been met with rampant price chopping. Sellers are hitting the market and finding some big air pockets. My what a difference a few months can make! Home inventory continues to rise off the lows earlier this year. That has caught a number of home sellers and agents completely off guard. It shouldn’t have. As I have been detailing for months, this shift and the coming correction were baked in the cake. What’s amazing is that so many “experts” continue to be in denial of what’s happening.
Denton County home sales declined just slightly in May compared to the same month last year. Pending sales rose five percent for the month, but don’t get too excited about that. Mortgage purchase applications fell off a cliff the past two weeks, and are now down 21 percent from the same time last year.
Area home prices posted new record highs looking at nominal median and average prices. Behind the surface, however, there was a major shift taking place. Prices on a per square foot basis actually fell last month. That hasn’t happened since May of 2020. Denton County home prices are poised to fall as the Covid housing bubble begins to unwind. The insatiable demand for homes from buyers, speculators and investors has run into a major hurdle…the Federal Reserve.
The same cabal of elitist day-trading monetary junkies that sat on their hands while this bubble was inflating right before their very eyes are now seriously concerned about the spiraling inflation they created during the pandemic. As the saying goes, “Don’t fight the Fed”. Jerome and his FOMC cohorts are now public enemy number 1 for the housing market.
I have to admit it’s a bit entertaining watching housing industry pundits and sell-side hype artists grasp for evidence that this bubble isn’t a really a bubble or that a soft landing is somehow still in the cards.
Today’s CPI report shows that inflation accelerated to a 40-year high of 8.6%. This was higher than the consensus estimates. Then again, the consensus has been wrong all year. The Bureau of Labor Statistics kept the gaslighting flame burning. CPI housing components showed the following year-over-year increases.
- Shelter 5.5%
- Rent of primary residence 5.2%
- Owners’ equivalent rent 5.1%
You might say the government has a sadistic sense of humor. To add insult to injury, real wages plummeted last month. The May report showed that real wages on a weekly basis were the worst since 2006. This is a feature, not a bug, of the current monetary system as practiced by the Federal Reserve. The public receives the fake narrative of stable prices and full employment. In practice, the Fed feeds the rich and screws working class Americans.
We saw a perfect example of this in the recent report from the National Association of Realtors on institutional buyer activity. The report noted that 52 percent of the homes sold in Tarrant County in 2021 were sold to institutional buyers. Institutional buyers accounted for 39 percent of all home purchases last year in Denton County. That’s a staggering amount of homes which were not being sold to owner-occupant buyers. Instead these homes were gobbled up by ibuyers, investors, speculators and corporations. Many were rehabbed and flipped to owner-occupants. Many were also converted to rentals for financialization and cash flow.
It goes without saying that much of the speculation and rentier activity in the housing market has been driven by Fed policy and super cheap capital. It’s a big reason inventory declined during the pandemic. It’s also why private equity scumbags have fallen in love with the build-to-rent housing space. Pricing families out of the market and turning them into long-term serfs (I mean renters) is an integral part of the PE business model.
Comically enough, this same NAR report had the audacity to imply that investor activity had “little impact” on home prices even though it openly acknowledged 42 percent of the institutional buyer purchases were converted to rentals last year. Talk about insulting your intelligence.
The speculation and financialization highlighted in the NAR report is precisely the kind of activity the Federal Reserve has to contain if it has any hopes of reining in spiraling inflation. The Powell Fed directly facilitated the latest bubble in housing. The spent an entire year ignoring the evidence staring them in the face. Now they are going to be forced to break the animal spirits they were previously encouraging. Welcome to modern central banking as practiced by the Fed.
The Denton County housing market is now staring at a very interesting bubble. The new construction backlog keeping inventory levels in the basement is now gone. Inventory of resale homes is growing, and inventory of new construction is growing even faster. I had to do a double-take when preparing this next chart. New listings of new homes in Denton County Texas jumped a staggering 236% from the same time last year. Holy Moly!
That’s one seriously eye-popping chart. It’s also a cause for concern for any prospective seller, assuming they are paying attention. Overall inventory levels have a lot more room to grow if the Federal Reserve is going to get serious about taming the inflationary monster they created. There a lot of new home developments in the pipeline in Denton County Texas. As the Fed tightens the screws, more inventory will hit the market. Area home builders are finally figuring this out. My inbox has been receiving a lot of “opportunities” from area sales reps the past two weeks.
Builders had it so good during Covid, customers were practically beating down the door to the sales offices. Now the market has turned dramatically. Competition for the prospective pool of buyers is a suddenly a thing again, as it should be. Those customer waiting lists that builders enjoyed earlier in the year will be evaporating faster than a puddle in the Texas heat.
The real estate market often turns slowly. Sometimes the change happens faster than normal. Major shifts in monetary policy can certainly speed things up. If you are buying or selling a home in Denton County Texas, you should pay attention to the tectonic shift taking place under your feet.
American consumers are getting buried alive. The Federal Reserve does a really poor job at managing the financial system. One thing they are pretty good at, however, is currency debasement as they enrich existing asset holders. Behold the destruction of the U.S. dollar.
Here are 7 tips for home sellers as this housing bubble begins to come unglued.
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