Denton home prices are still lower than spring 2022 bubble

Nominal home prices rose again last month, putting prices roughly $34,000 higher than the January bottom. That still leaves Denton home prices 4.8% lower than April 2022. Adjusting for home size, Denton home prices actually fell 9% from April 2022. Home prices throughout Denton County posted their third consecutive month of lower year-over-year prices in April. The median price per square foot of a Denton County home was 6% lower than the bubbly prices of April 2022.

Average percent of list price for a Denton home edged up to 96.2% in April. That’s still more than 10 percentage points lower than the manic peak in the spring of 2022 when buyers were bidding up everything not tied down. With tight spring inventory this year, the average number of days on market shrank to 43 days in April. That is closer to the 5-year trend line.

Available home supply edged up slightly to 1.7 months in April. The number of new listings has been lower than normal this spring with the lock-in effect of owners sitting on 2% and 3% mortgages. The supply of new homes has fallen sharply in recent months. Builders continue to take advantage of low resale inventory conditions to work through that backlog.

New home inventory plunged from 7.2 months of supply in November to just 2.5 months in April. If you have been shopping for a new home lately, you understand the challenge. Many of the more affordable options in the market were picked off early in the year. Builders also sold a number of homes to investor speculators. You can see some of those new homes already up for lease.

The share prices of many builders are back near record highs with their improved outlook and diminished competition (aka the resale market).

While major builders were busy lobbying Congress for more industry-friendly regulations, the three largest U.S. home builders spent more than $3 billion in combined share repurchases in 2022. When they did end up with some inventory sitting on the ground in the fourth quarter of 2022 and early 2023, they chose to sell some of that affordable housing stock directly to investors instead of first-time homebuyers. File that in your memory bank when the next recession arrives.

Rents are softer, but still higher than a year ago

Apartment List’s April report shows that Denton rents were flat for the month but still 3.9% higher than a year ago. Single-family rents in Denton were 3.2% higher than a year ago. With more prospective buyers squeezed out of the purchase market, affordable rental homes have been tough to find this spring.

The appraisal district really admires your home

You may have noticed the appraisal district took the liberty of adjusting the market value of your home significantly higher for 2023. The original notice values for 2023 definitely broke some records. This has been happening all across Texas as appraisal districts toss reality to the wind and ignore a basic requirement of the Texas tax code.

Here’s what the appraisal districts are supposed to be doing:

“With few exceptions, Tax Code Section 23.01 requires taxable property to be appraised at market value as of Jan. 1. Market value is the price at which a property would transfer for cash or its equivalent under prevailing market conditions if:

It is offered for sale in the open market with a reasonable time for the seller to find a purchaser;

Both the seller and the purchaser know of all the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions on its use; and

Both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the need or demand of the other.”

I have highlighted the critical section above. With all of the recent chatter about 10% to 20% valuation increases, it’s worth noting home prices in Denton County were only up 1.5% year-over-year in January.

Home prices were year-over-year negative for February, March and April. We will likely see another negative year-over-year print in May. So, what gives?

In case it isn’t perfectly clear yet, Texas appraisal districts have been extrapolating the spring 2022 housing bubble forward into 2023, pretending that prices are still higher in 2023. It appears many appraisal districts and their mass appraisal algorithms are completely ignoring the “prevailing market conditions” in 2023 where mortgage rates and the cost of borrowing are dramatically higher than they were for the first quarter of 2022.

I have no doubt many appraisal districts will be making concessions off those initial 2023 market values this season. The Denton Central Appraisal District processed over 1,000 suits from property owners last year. I can only assume there will be even more owners heading to court in 2023.

Under Texas’ two-tiered property tax system, wealthy and commercial property owners will be busy jumping through the loopholes available to them in district court. Many of those wealthy property owners will see their initial market notice values dramatically reduced as a result. Many Denton-area homeowners will be stuck with a second consecutive year of 10% cap increases, and much worse if they don’t have exemptions.

The Texas Legislature is still working on a package to provide the appearance of property tax reform without actually lowering the property tax bill for your home. Until the Legislature proves otherwise, it’s safe to assume your property tax bill is going to be higher in 2023. It is going to be another banner year for the property tax protest firms, including one company owned by a state senator.

While most homeowners are watching their property taxes spiral higher, the leadership in Austin continues to dance to the music of their biggest campaign donors. Texas has the best property tax system money can buy. That money, and the power brokers wielding it, has been working hard over the past two decades to make sure there is no actual “reform” to lower the taxes on your home.