Aaron Layman: Denton posts third month of lower home prices — and what’s going on with property taxes?

Most of the general metrics for the housing market showed continued improvement in May. Average days on market edged lower to 43 days. Average percent of list price edged up to 96.9%. Available home inventory climbed slightly to 1.8 months of supply. Resale inventory has been on the rise since February. New construction inventory has been heading in the opposite direction all year as builders capitalize on the opportunity to move even more of their pipeline backlog in a highly distorted market.

The supply of new homes in Denton shrank to 2.4 months of supply in May. That places it slightly below the longer-term trend. Prospective new home buyers are still taking advantage of those interest rate buy-downs and other concessions offered by most builders — when they can find an affordable home.

Affordable inventory is still in short supply across North Texas. The inventory situation has been compounded by another market-distorting dynamic. Builders continue to siphon capital and inventory from the market to feed Wall Street opportunists.

D.R. Horton, the country’s largest homebuilder based right here in DFW, recently sold 4,000 homes to New York-based private equity giant Pretium Partners for $1.5 billion. The homes were planned as rentals, and Horton sold them to Pretium, adding to Pretium’s portfolio of over 85,000 single family rentals. Who doesn’t love financialization? Wheee!

All of this financialization comes at a cost. While builders are raking in profits and home sellers take advantage of tight inventory levels, housing remains extremely expensive by just about any metric you look at. Millennials and first-time home buyers continue to get squeezed. That squeeze will be even more pronounced when payments resume on roughly $1.8 trillion in student loan debt in the fall.

Behind the surface, Denton’s housing market looks more fragile than the headline numbers you will see and hear from the industry’s usual suspects. Under the surface, Denton home prices just posted their third consecutive month of lower year-over-year prices. Meanwhile, nominal home prices were up 1.3% in May. The median price of a Denton home (adjusted for home size) fell 7.7% year-over-year in May. The average price per square foot fell 8%.

Real affordability (or the lack of it) remains a big challenge for the local housing market. There’s no way to escape high housing costs when the price of a one-bedroom apartment in Denton is still up 26% from pre-pandemic prices.

While more U.S. metros are experiencing negative year-over-year rents, you still won’t find many those markets in the DFW area. According to Apartment List, the majority of large U.S. cities are still seeing positive year-over-year rent growth in May. Monthly rents actually rose in 76 of the 100 largest markets in May.

Texas Legislature serves up a donut on property tax relief

The regular legislative session ended without any property tax relief from the leadership in Austin. Gov. Greg Abbott, Lt. Gov. Dan Patrick and state House Speaker Dade Phelan spent months tossing around various Band-Aids in a fake attempt at fixing a broken, dysfunctional system. Even in a special session, the Texas House and Senate remain divided on how to actually provide property tax relief without upsetting the biggest campaign donors.

While all of the political sparring was taking place, the JW Marriott resort in San Antonio sold for $800 million. The really interesting part of the transaction is that the Bexar Appraisal District shows the resort was “appraised” with a 2023 market value of $370 million (a 53% discount).

Imagine what would happen to Abbott and Patrick’s property tax relief discussion if the state constitution mandated every home with a residential homestead exemption was required to be assessed and taxed at only 47% of market value. Imagine if the cloak of uniform and equal appraisal in Texas was revealed to the general public for the charade that it is.

It is entertaining hearing Abbott say he wants to end property taxes in Texas. The Houston Chronicle described that delusional fantasy for what it is. What Abbott really meant was that he wanted to end property taxes for his wealthiest donors, or at least keep the generous loopholes in place which allow them to avoid paying property taxes in the same system experienced by most Texas homeowners.

Austin leadership wants to avoid a state income tax at all costs because that would upset the virtuous cycle of corporate welfare dispensed in the name of economic development. Abbott isn’t going to end the gravy train for the property tax consultants, attorneys and real estate industry players any time soon because they help to keep the campaign coffers filled.

The Denton Central Appraisal District is looking to increase its budget to $20 million for fiscal 2024. The proposed budget would help the appraisal district add more staff members. They can use all the help they can get under the circumstances. Denton County is now home to over a million residents. That’s a lot of new accounts to service.

Some of those accounts need more than just service and processing. An inquiry to the Denton CAD revealed there are more than 11,400 properties in Denton County receiving an agricultural exemption of some form. The Denton CAD could probably use some additional help for review and compliance for the exemptions being processed.

There are perfectly legitimate reasons for most of these exemptions. Denton County has a large number of property owners in legitimate agricultural business. Those owners need and often depend on those important exemptions. There are also a lot of area property owners taking advantage of the system so they can avoid paying property taxes and/or speculate on rising property prices.

When a $5 million commercial parcel produces only $28 in annual property taxes because it had a few cows grazing on it, there are ramifications for the homeowners around that property. It’s a great deal for the entity receiving the tax break, but not so much for Denton-area homeowners getting buried in spiraling property taxes.

In 2023, the Denton Central Appraisal District has vaporized $8.76 billion worth of property from the tax rolls via agricultural exemptions.

In many cases, area residents enjoy seeing that green space without even realizing they are paying for it. Huge swaths of some of the most valuable property in the county are being wiped from the tax rolls every year. That puts significant pressure on the appraisal district to make up for the tax revenue somewhere else. The funding and tax dollars for services has to come from somewhere.

Under the current structure of the Texas property tax system that “somewhere” is you, the typical residential homeowner, or other nonexempt property.

You may be wondering how the property taxes on your home went up again this year even though real home prices are lower than last year. That’s a direct consequence of state leaders allowing some of the wealthiest property owners to opt out of the system you are still trapped in as an average homeowner.