Who could have guessed real estate would have the year that it had in 2020. Despite the impact of the pandemic and the resulting economic slow down, record low interest rates and new demand caused by a changing work environment drove the demand for homes to new highs. The result was increasing home prices and booming home equity. Can that continue as we head into 2021? Watch the following video or continue reading below to find out.

Unlike 2006, 2007, and 2008, when home prices were increasing due to speculation and exotic mortgage products, home price appreciation last year was due to low supply and high demand. According to the CoreLogic Home Price Insights Report, nationally, home prices increased by 8.2% over the past year. As CoreLogic explained:

Home price growth remained consistently elevated throughout 2020. Homes sales for the year are expected to register above 2019 levels. Meanwhile, the availability of for-sale homes has dwindled as demand increased and coronavirus (COVID-19) outbreaks continued across the country, which delayed some sellers from putting their homes on the market.

While the pandemic left many in positions of financial insecurity, those who maintained employment nd income stability are also incentivized to buy given the record-low mortgage rates available; this is increasing buyer demand while for-sale inventory is in short supply.

Both Frisco and Prosper outperformed the national average price appreciation by a wide margin. Median home prices in Frisco rose 18.1% year-over-year while median home prices in Prosper rose 10.9% year-over-year.

Where Will Frisco and Prosper Home Prices go in 2021?

The imbalance of supply and demand will continue to be the driving force behind home prices in 2021. If supply remains low, which is currently expected, home prices will continue to rise, but I expect at a slower pace than 2020 partly due to expected rises in interest rates.

Housing Supply

As we enter 2021, the number of homes for sale nationally, according to the National Association of Realtors, is approximately 370,000 fewer than a year ago. To put that in perspective for our local markets;

In December 2019, there were 731 homes for sale in Frisco. In December 2020 there were 219. An inventory decline of 70%.

In Prosper, there were 272 homes for sale in December 2019. One year later in December 2020, there were 65 homes for sale, a decline of 76.1%.

There is speculation that housing inventory will ease somewhat in the second half of the year as more homeowners become comfortable listing their home for sale as the health crisis eases, more new home inventory becomes available, and those households who have been financially impacted by the pandemic are forced to sell.

Housing Demand

In addition to a changing work environment causing people to reassess their housing needs, record-low mortgage rates have driven buyer demand as well. With mortgage payments lower than rent payments in most areas and considering mortgage rates are a full percentage point lower than they were at the beginning of 2020, affordability has been kept in check despite rising home prices. These factors are why demand is expected to remain high throughout the year.

Based on the supply and demand projections, real estate analysts are forecasting continued home price appreciation in 2021, but at a slower pace than we saw in 2020. Here is the latest forecast for national price appreciation;

In Frisco and Prosper, I expect that we will also see continued price appreciation. While we might not appreciate quite as much as we did last year, depending on what happens with mortgage rates, I do expect that we will exceed the national forecasts.

Bottom Line

Demand for housing in our area continues to be very strong. In addition to continued growth from other states, we are also seeing movement from people currently living in, or closer to, downtown Dallas.

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