Housing inventory stays tight in Denton, even as market rebounds

One of the more interesting developments the past few months has been the continued lack of inventory. Available home inventory has not improved to any significant extent, at least not what you would see in a normal seasonal pattern. The lock-in effect of owners sitting on 2% and 3% mortgages has kept resale inventory abnormally low. Existing home sellers have been AWOL so far this spring.

That low resale inventory has been another gift to local homebuilders who continue to work through a large backlog of homes in the area. New construction home sales made up 44% of the total Denton sales in March and a third of the pending contracts. That’s something you certainly don’t see in a normal market.

After spiking to 7.1 months of supply in November 2022, new home supply in Denton has fallen back to just 2.4 months of inventory. The inventory of resale homes is roughly half that at just 1.2 months of supply. Tight supplies have been helpful for sellers, but the dearth of inventory is frustrating some prospective homebuyers.

Mortgage interest rates have continued to bounce between the 6% and 7% range so far in 2023. A mini-banking crisis saw rates briefly dip below 6%, but buyers are currently looking at rates somewhere around 6.5% for a 30-year fixed-rate mortgage.

Apartment List’s latest rent report showed U.S. rent growth continuing to moderate, sliding to 2.6% last month. There is still a large pipeline of multifamily supply coming to the market. Year-over-year rent growth in Denton stood at 4.6%, rising 0.6% for the month of March.

The challenge for most Denton families is that annualized rent growth over the last three years stands at 8.6%. Many families need negative rent growth to avoid falling behind even further.

The inflation fight is far from over

Recent data has been encouraging, but the main takeaway is that central banks will have to keep rates high until core inflation eases well below federal funds rates. Headline inflation has eased from the 40-year highs, but that improvement was largely driven by volatile components.

The Federal Reserve likely realizes it is in a dangerous position. Those volatile inflation components could reassert themselves later in the year if the Fed is not careful. Such a scenario could feed back into core inflation through wages. Housing is another obvious concern that could reignite in the current environment.

The latest minutes from the Federal Open Market Committee were noteworthy for a couple of reasons. While market participants continue to expect rate cuts later this year, the Fed has other plans.

Here are a couple of key excerpts from the FOMC March meeting minutes.

“Members agreed that the Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, members agreed to raise the target range for the federal funds rate to 4-3/4 to 5 percent. Members agreed that they would closely monitor incoming information and assess the implications for monetary policy. Given recent developments, members anticipated that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. … In addition, members agreed that they would continue reducing the Federal Reserve’s holdings of Treasury securities and agency debt and agency MBS, as described in its previously announced plans.”

The FOMC’s Staff Economic Outlook is forecasting a mild recession.

“For some time, the forecast for the U.S. economy prepared by the staff had featured subdued real GDP growth for this year and some softening in the labor market. Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years. Real GDP growth in 2024 was projected to remain below the staff’s estimate of potential output growth, and then GDP growth in 2025 was expected to be above that of potential. Resource utilization in both product and labor markets was forecast to be much less tight than in the January projection. The level of real output was projected to move below the staff’s estimate of potential output in early 2024, more than a year sooner than in the previous projection. Likewise, the unemployment rate was projected to rise above the staff’s estimate of its natural rate early next year.”

As we saw with the Silicon Valley Bank fiasco, there are a number of road hazards in the economy that are flying under the Fed’s radar. Prudent regulation of the financial system and the economy is not the Fed’s specialty. If the Fed is forecasting a mild recession, you can rest assured there will be some additional accidents along the way.

Given the outsized distortion of the Fed’s balance sheet and the pace of interest rate hikes this year, a “mild” recession would be an optimistic outcome.

Reckless fiscal and monetary policy during the pandemic have created a number of challenges in terms of normalizing policy. The actual recession hasn’t arrived, and real estate industry participants are putting their rose-colored glasses on again. History suggests there will probably be some additional bumps in the road before the housing market is back on a sustainable path to recovery. If you are in the market to buy or sell a home, keep an eye on those potholes and speed bumps.

The fake media narrative on property taxes

It’s almost as if local news stations have taken a memo from the appraisal districts and property tax consultants and used it to justify more tax increases and protests this season.

You may have seen some stories about homeowners getting hit with another 10%-20% increase in their “appraisal” valuations this season. The truth is that Denton County home prices were up just 1% year-over-year from January 2022 to January 2023. Home prices in the city of Denton actually fell 2% year-over-year in January 2023.

While appraisal districts are playing catch-up to the latest three-year rise in home prices, it would be helpful if major news outlets would bother to get their facts straight, particularly since homeowners are about to get hit with another round of fake property tax “reform.”

The Legislature continues to work at the behest of their major donors to keep Texas’ two-tiered property tax system in place. It is important to keep in mind who actually benefits from the current system, a system that is really more of a charade in terms of uniform and equal appraisal.