North Texas home sales hit a wall in February as inventory available in the market dried up across the Dallas-Fort Worth area. The Fed-fueled mania gripping the local real estate market is now left searching for support at grossly distorted levels. North Texas home sales declined by 6 percent compared to February of last year. Pending home sales fell 13 percent. The supply of homes available for sale has never been lower according to NTREIS statistics going back 20 years. Inventory in the DFW area now stands at a single month of supply at the current sales pace.
According to the latest CPI figures just released by the Bureau of Labor Statistics, the consumer price index for shelter rose 0.2% in February and was up 1.5% over the 12 month period. Meanwhile, on planet Earth the median price of a DFW home rose 14 percent from a year ago to a record $302,000. The average price of a North Texas home rose 21.4 percent in February to a record $384,231. Nope, no inflation there.
Denton County also experienced sharp inflationary pressure in the real estate market in February. Average home prices rose 17. 1 percent to a record high of $411,546. The supply of homes was down 75 percent from a year ago at 0.6 months.
The Federal Reserve’s $multi-trillion trickle-down Covid experiment unleashed all sorts of chaos in the real estate market. It turn out $3.5 trillion in additional liquidity injected into a corrupt financial system is actually inflationary for real estate. Who could have known? What comes next is the fun part. The Powell Fed has managed to back itself into a corner again. The bond markets are smelling a rat, and the real estate market is too.
Mortgage interest rates bottomed earlier in the year, and are now well off of recent lows. The average contract interest rate on a purchase mortgage was 3.26% according to the latest MBA weekly survey. Those are they highest rates since last July and a 40-basis point rise from the start of the year. It’s important to note rates are currently rising even though the Fed is still engaged in $120 billion per month in Treasury and mortgage-backed securities asset purchases.
For those who remember the second half of 2018, the Fed was in the midst of quantitative tightening, shedding $50 billion per month from the massive balance sheet before chaos ensued in the fourth quarter. Mortgage rates were approaching 5 percent and the stock market puked 20 percentage points from the S&P index before the Fed said no mas.
In layman’s terms, the housing market was rolling over with 5 percent mortgage rates back in 2018. The breaking point/threshold is now lower thanks to the Fed and their spectacular efforts to prop up Wall Street during the pandemic. The housing industry shills, particularly those parading as professional economists, are waking up to the prospects of inflation. Officials at the Fed have taken notice too. The law of diminishing returns is still in effect. Every subsequent Fed liquidity injection (aka QE), requires more and more intervention to maintain the everything asset bubble before it falls apart.
As Dr. Lacy Hunt would put it, it’s the declining marginal revenue product of debt. The fate of the local housing market rests upon the shoulders of the Fed and the distortions they created. Buckle up. It could be a bumpy ride.
A reminder that the house depends on ultra low rates to keep it from falling apart. The Fed keeps monetizing debt. Total system debt keeps spiraling higher, making the economy even more interest-rate sensitive.
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