Denton County’s real estate market was running out of steam in September. New cycle highs for mortgage rates and more typical seasonality took a bite out of demand. Sales volume dropped 9 percent compared to the same month a year ago. Pending contract activity fell by a similar amount. Median and average home prices are now lower than where they stood in April. Median prices are still $40,000 lower than where they topped out in the frenzy of 2022.

New home builders continued to pull in an outsized portion of sales in September. They are doing so by spending anywhere from 5-9 percent of the sale price to make a sale. That includes major rate buy-downs and other incentives. Closing cost incentives and mortgage rate reductions have been a key ingredient pushing buyers toward new construction this year. That dynamic remained in place in September as mortgage rates pushed north of seven and a half percent. Without affordability sales continue stagnate.

Speaking of affordability, the monthly house payment for a prospective North Texas home buyer hit a new high in September. Whee! The principal and interest payment on a median-priced Denton County home hit a new cycle high of $2560. The total monthly payment for that prospective buyer was roughly $3500! The buyer of an average priced home putting 20 percent down was looking at a monthly payment of nearly $4,200 with a market-rate mortgage.

Denton County House Payments September 2023

Now you see why those interest rate buy-downs have become so important. Sales volumes would be plummeting at current prices without those incentives. Home builders aren’t stupid, so they have been spending tens of thousands of dollars to bring the rates down and make the payments work. The alternative of reducing prices by 25 percent is much less appealing. In the current market rate buy-downs are the most cost-effective path to home affordability.

U.S. Mortgage Rates October 5 2023

Real Estate Industry Under Fire

The real estate industry in general is under fire. Allegations of sexual harassment and other misconduct by NAR leadership hasn’t helped. A major commission lawsuit against the National Association of Realtors and major franchise brokers has only added fuel to the flames. Anywhere and RE/MAX decided to settle for millions of dollars before the class-action Sitzer/Burnett case went to trial. Keller Williams and HomeServices are apparently awaiting the trial which begins October 16. The basic gist of the lawsuit is that NAR’s Participation Rule, which requires listing brokers to offer buyer brokers a commission to list a property in the MLS, violates the Sherman Antitrust Act by inflating seller costs. They apparently have a point, since NAR has already backed off and reversed that rule. Now the National Association of Realtors is saying that brokers can offer nothing and still be in compliance with the rule.

The trial and the fallout could have an effect on overall commissions and how agents are compensated. Major franchise brokers have been notorious for pushing the “typical” or “full” commission jargon to sellers to get them to pay six percent or more to sell a home. If you’ve ever sat in on one of those training sessions or watched a slide deck of common sales tactics, you know what I’m talking about. It was appalling when many agents working at these major brokerages were sticking sellers for 6 percent commissions during the pandemic…even when buyers were lining up at the door to buy anything not tied down. Now, of course, the sales pitch has changed. With sales volumes dwindling those legacy brokerages are rounding up the troops and tweaking the script. Gotta keep the lights on and pay that overhead. LOL!

If you ever get the hard sell from an agent in North Texas trying to stick you with a six percent commission to sell a property, just show them the door. You can then pick up the phone and call me for a much more consumer-friendly alternative. Selling a home in Denton County Texas doesn’t have to cost you six percent in commission fees, especially at today’s prices.

Economic Slowdown Ahead

Higher for longer continues to curb demand for real estate. That should not be surprising. The Federal Reserve has little choice after they let the horse out of the barn and allowed inflation to become entrenched in the economy. Quantitative tightening has to continue. The labor market hasn’t cracked yet, but the signs of stress continue to build. The September employment report featured a couple of interesting items that didn’t get much traction among media pundits taking their usual talking points.

The number of multiple full-time job holders hit a new high. Apparently there are more people who need to work two full-time jobs just to keep up with rampant inflation. This is not really surprising.

Multiple Job Holders September 2023

Another interesting reading from the September payrolls report was the huge divergence between the establishment and household survey. According to the household survey the U.S. lost 692,000 full-time jobs in just the last three months. You probably didn’t see that mentioned on the local news.

Full-time Employment Household Survey September 2023

Mortgage interest rates are higher than many thought possible. A huge amount of issuance from the U.S. Treasury to fund massive spending deficits doesn’t help. The Federal Reserve is also holding the housing market by the throat because they have no choice. The Fed is still sitting on $2.48 trillion in mortgage-backed securities which they are slowly rolling off the balance sheet. Many industry leaders cheered the arrival of two percent mortgage rates which pulled forward demand. We are now experiencing the bountiful harvest of consequences with the Fed’s roller coaster of policy errors.

Fed MBS Held Outright Oct 11 2023

If you are in the market to buy or sell a North Texas home, be careful where you get your “advice” from. There are plenty of agents who will happily “sell” you a regurgitated talking point. If you want honest, objective representation on your next Denton County real estate transaction you know where to find me.

Denton County Home Sale by Aaron Layman Properties