Inflated prices continue to curb Denton County home sales. Prevailing mortgage rates are at the lowest levels we’ve seen in 19 months, but that hasn’t helped sales activity. Closed sales were down 7 percent year-over-year in the DFW area. Sales were 9 percent lower across Denton County, while pending sales contracts slid 11 percent.
It might have something to do with the prices. Average home prices in Denton County were up 5.7 percent from a year ago, flirting with that spring 2022 bubble top again. Official stats show we still haven’t taken out the May 2022 bubble peak yet. Across the Dallas-Fort Worth metro area the story is the same. High home prices are putting a big dent in real estate transactions.
Existing Home Inventory Marches Higher
Most of the pandemic-era stimulus has been spent. Now we’re seeing fundamental demand driven by normal factors like employment and income. With the labor market softening, many buyers appear to be having second thoughts about expensive housing payments.
There are only so many cash-rich move-up buyers who can afford prevailing market prices. This is why you still see luxury homes selling fairly well while the heart of the market continues to stagnate. Area home builders are doing what they can to avoid lowering the actual prices. Big incentives and rate buy-downs are still doing a lot of heavy lifting.
Existing home sellers who ignore what’s happening are seeing their listings sit on the market. This is why we’ve seen existing home inventory in Denton County spike significantly this year. We now have 3.9 months of inventory for resale homes across Denton County, up 56 percent from a year ago.
Inflation Still Eating Away at Your Purchasing Power
Did you hear the good news about August inflation? Headline inflation cooled to 2.5 percent yearly growth last month, driven by softer gas & electric prices and lower used car prices. The only problem is that core inflation is still parked at 3.2 percent year-over-year annual growth. That’s well above the Fed’s 2 percent target, and yet it is widely anticipated the Fed will cut interest rates at next week’s meeting.
You can almost smell the policy error in the air.
It’s more than a bit amusing to watch financial media and overleveraged commercial real estate speculators clamor for rate cuts when we’re not even in an official recession. The spoiled children on Wall Street just can’t get their bailout fast enough. The cries for lower rates and more demand stimulus are a double-edged sword. More stimulus will just serve to keep Denton County home prices artificially inflated.
The unfortunate truth is that the Denton County housing market needs more time to work off the excesses of the pandemic mania and over-the-top stimulus. As long as home prices remain high, Denton County home sales are likely going to be stuck in the mud for the near term.
High Rents and Algorithmic Pricing of Apartments
The federal case against RealPage finally came to fruition. The 115-page civil complaint against Richardson-based company is a doozy. If you ever felt like your apartment landlord was jacking up rents in an unreasonable fashion, the DOJ’s case is well worth your time. Attorney General Merrick Garland summed it up like this…
“Americans should not have to pay more in rent because a company has found a new way to scheme with landlords to break the law. We allege that RealPage’s pricing algorithm enables landlords to share confidential, competitively sensitive information and align their rents. Using software as the sharing mechanism does not immunize this scheme from Sherman Act liability, and the Justice Department will continue to aggressively enforce the antitrust laws and protect the American people from those who violate them.”
The DOJ’s case outlines egregious behaviors cited from internal documents and sworn testimony…”
- RealPage acknowledged that its software is aimed at maximizing prices for landlords, referring to its products as “driving every possible opportunity to increase price,” “avoid[ing] the race to the bottom in down markets,” and “a rising tide raises all ships.”
- A RealPage executive observed that its products help landlords avoid competing on the merits, noting that “there is greater good in everybody succeeding versus essentially trying to compete against one another in a way that actually keeps the entire industry down.”
- A RealPage executive explained to a landlord that using competitor data can help identify situations where the landlord “may have a $50 increase instead of a $10 increase for the day.”
- Another landlord commented about RealPage’s product, “I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and term. That’s classic price fixing…”“
There is no doubt that high rents are the work of much more than a single actor in the marketplace. The problem is that prices are always formed at the margins. If there is an actor or group of actors with the power to move markets, there’s potential for abuse. There’s a lot of potential for abuse if they are working behind the scenes to manipulate the margins. Renters in Denton County are likely being impacted by algorithmic software. It is widely used in the DFW market.
The case against RealPage will be interesting to watch as it works its way through the court system. The use and regulation of AI in the marketplace is a new frontier in terms of antitrust enforcement. If nothing else, the DOJ’s complaint against RealPage helps to remove the veil of algorithmic secrecy so more Americans can see how big tech is working to empty their pockets.
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