Calm before the storm? Not quite there yet for Denton’s housing market

Some context is probably in order for the February numbers. Average percent of list actually fell in February with sellers receiving 94.6% of original list price. Demand for homes is still good, but the numbers suggest affordability remains an issue for the local housing market. Average days on market in Denton climbed to 62 in February.

The last time it took more than two months to move a Denton home was in 2015. Quality homes are selling faster than the averages, but we’re still a long way from the FOMO-mania seen in the first half of 2022.

Long-awaited relief for renters appears to be in the works. Apartment rent growth is cooling. Apartment List showed the slightest decline in February asking rents. Year-over-year rent growth for the city of Denton slowed to 5.5%. A smallish two-bedroom apartment in Denton will still set you back more than $1,400 per month.

Rents are still 25% higher than where they stood in March 2020. More construction on the way should continue some of that downward price pressure.

The broader Denton County market experienced a similar boost to activity last month. Pending sales jumped 23%. Median and average home prices bounced slightly during the month. The available supply of homes dipped to just 1.7 months.

As more sellers and builders chopped prices in recent months, buyers scooped up more local inventory. The percent of original list price has made marginal improvements for the past two months now.

The housing market is still adjusting to higher interest rates and increased volatility. The Fed provided some lift in January by taking its foot off the brake at the first FOMC meeting of the year. That was a perfect excuse for housing industry participants to start calling for a bottom in the housing market.

February non-farm payrolls showed that the U.S. economy added another 311,000 jobs to the economy. The employment data suggests we’re still dealing with a tight labor market. Consumer price inflation for February posted at 6%. That’s still three times higher than the Fed’s target.

Core inflation came in hotter than expected for February, and shelter inflation increased from January to February.

The housing market, and particularly the new home market, are showing few signs of recession … yet. This is a major problem for the Powell Fed. It’s going to be really difficult to bring down inflation and contain it without a significant increase in unemployment.

The Fed generally hikes until something breaks. We’ll get to that in a minute. Many real estate and mortgage industry participants have been calling for Fed rate cuts to boost their transaction volumes. Bailout nation loves cheap money from the Federal Reserve Bank. After more than a decade of ZIRP (zero interest rate policy), a number of wealthy people have come to rely on continuous market intervention and interest-rate suppression to maintain a comfortable living.

The challenge for the Denton housing market continues to be the dramatic decrease in affordability caused by those years of intervention and market manipulation.

While many housing industry professionals are quick to blame the recent rise in rates, they completely dismiss the artificially low interest rates and QE that boosted prices and transaction volumes along the way.

The Mortgage Bankers Association purchase application index is still 42% lower than the same time a year ago. Inflated home prices are still butting heads with sharply higher mortgage rates.

March 12, 2023: The day capitalism died

The implosion of Silicon Valley Bank (SVB) is yet another reminder of the cockroaches who have been hiding in plain sight. Loose financial conditions and cheap money helped venture capitalists, zombie companies and speculators fly under the radar. Quantitative tightening and a return to real rates is exposing who was swimming naked.

The Silicon Valley tech crowd received their bailout less than three days after Silicon Valley Bank went under. While millions of struggling Texans are seeing their food stamp benefits reduced this month, the rag-tag team of the Federal Reserve, Treasury and FDIC chose to bail out Silicon Valley speculators, crypto mavens and uninsured depositors who ignored basic risk management protocols. Whee!

In doing so, the Fed/Treasury/FDIC introduced more systemic risk into the financial system. The short story is that SVB’s management served up a colossal failure in risk management. SVB depositors were not innocent, either. Most of them surely knew about the FDIC $250,000 insured threshold. SVB provided benefits to them for their poor risk management. Some received generous lines of credit on businesses with no real profits.

Silicon Valley Bank was most certainly not a boring, conservative bank as some have attempted to portray it. The failed CEO was on the board of directors of the San Francisco Federal Reserve for starters. The executive management team was loaded with recycled GFC participants. CEO Greg Becker and other officers were cashing in millions in stock in the days and weeks before the bank going under.

Becker lobbied for looser regulations back in 2018. In testimony to Congress, Becker touted the “low-risk profile of our activities.” Go figure!

We will now be treated to an assortment of not-so-noble lies about how the SVB bailout was not actually a bailout and no taxpayer money was used. Considering we just socialized the entire banking sector, you would think Congress would be keen on imposing some regulations. They could increase amount banks contribute to the FDIC insurance fund. They could prohibit stock buybacks and cap executive pay. If we’re going to treat banking as a utility where every depositor is insured, then it’s probably a good time to stop rewarding bank CEOs and management for systemic failures and outright criminal behavior, which many banks have admitted to over the past several decades.

The irony of the Silicon Valley bailouts is that the Fed just injected another inflationary impulse into the equation while many Americans are getting buried by elevated inflation. This is the exact opposite of the behavior you would expect from serious people who say they are working to bring inflation down.

You may remember last month’s column in which I mentioned a bumpy ride. That volatility is probably going to be with us for a while. The Fed is caught between a rock and hard place, a credibility trap of its own making.

Things are already breaking because of reckless mismanagement in the financial system. It will be interesting to see how the Fed adjusts its position on quantitative tightening in the months ahead.