The North Texas housing market continues to hope for a soft landing by the Fed. Agents and market participants continue to front-run a Fed pivot that hasn’t happened. There are plenty of people in the real estate industry who want and need lower rates to bolster their business. Many of these same people are agents and levered speculators who feasted on the $trillions in stimulus that drove the markets to their bubble highs.

Fortunately cooler heads are currently driving policy. Normalization in the housing market continues to trim some of the froth from the housing sector. NTREIS data shows Denton County home sales were down 24 percent year-over-year in December. Pending home sales (contracts) slid 20 percent from a year ago. Contract activity in Denton County peaked out in May of 2022 with the FOMO bubble. It has been nosediving for the last seven months.

The reality is that Denton County home sales were probably 30-35 percent lower in December. The press releases and headline numbers still aren’t factoring in what happened with listed inventory during the pandemic. There were a lot of new homes which were sold but never listed (or captured in the MLS stats) during the pandemic boom. New construction listings didn’t really return until the second quarter of 2022. It’s reasonable to assume official home sales estimates will remain on the high side for at least another quarter.

Median percent of list price in Denton County saw its eighth consecutive month of declines in December, falling to 94.7 percent. Denton County home sellers received an average percent of list of 93.3 percent last month. That’s the lowest percentage received by sellers since 2011 coming out of the Great Recession.

With mortgage interest rates over six percent home prices continued to soften in the second half of the year in North Texas. Home sellers received a friendly reminder that buyers buy payments, not just the nominal prices. Liquidity giveth, and liquidity can also taketh away. It’s not like the Fed didn’t warn housing industry participants what was coming. The Powell Fed made it pretty clear they were trying to orchestrate a housing market reset in 2022.

The Fed has pretty successful in this regard. There is still work to be done, however, with investors and speculators still active in the market. This is part of the reason the Fed is still reluctant to pause the rate hikes. They know inflation is still a problem. They also know there are embedded wage-price implications of easing monetary policy too soon. The employment sector is throwing off some mixed signals, and the labor market remains fairly tight.

Available home inventory moved lower in December with a lot of year-end discounting. Sellers hoping for a boost in pricing due to an inventory “shortage” shouldn’t get their hopes up. There’s still plenty of new construction backlog to work through in 2023. There are also a lot of sellers who pulled their listings last year who will take another bite at the apple in 2023.

The FHFA increased the conforming loan limits for 2023. That should bring more buyers into the market, especially if prices continue to cool. The new conforming loan limit for Denton County Texas is $726,200. The 2023 FHA loan limits for Denton County rises to $472,030. The irony of course is that the government is intentionally fueling home inflation while advertising efforts to bring inflation down.

If you are in the market to buy or sell a home, pay attention to the flows. Quantitative tightening still has a lot of room to run. Mortgage interest rates are likely to stay elevated for a while. The pause in Fed rate hikes many participants are expecting later this year does not mean rate cuts. For the time being the messaging from the Fed remains higher for longer. Whether you like it or not, fighting the Fed is generally a bad idea.

Here’s a friendly reminder of the monetary insanity that drove North Texas home prices to their lofty heights. That same liquidity will continue exiting the building in 2023…

Fed Balance Sheet & MBS Holdings December 28 2022

Balance sheet normalization still has a long way to go…

Fed Balance Sheet December 28 2022