Even though summer doesn’t officially start until June 20th, once the kids are out of school and the temperatures start to rise it means summer is here in my book! Like current temperatures, the real estate market shows no signs of a cooling trend and buyers are starting to get weary from the heat.
In this month’s real estate market report, I look at the latest trends and numbers, both nationally and locally here in Frisco and Prosper, and share what analysts at Morgan Stanley have to say about a housing bubble.
Continue reading below or watch the following video for the latest updates.
How Much Equity Has Your Home Gained? CLICK HERE to Find Out Instantly
Like we have seen all year, the real estate market continues to show very strong buyer demand against weak supply. This isn’t just something we are experiencing here in North Texas, but is consistent across the country. The National Association of Realtors (NAR) recently released their updated traffic reports for both buyers and sellers. Here is how current buyer activity looks across the country:
Dark blue represents “very strong” buyer traffic and lighter blue represents “strong” buyer traffic. As you can see, the entire country, except Delaware, (not sure what is going on there) is showing strong or very strong buyer traffic. It’s great to have strong buyer traffic, but when you don’t have enough supply the result is multiple offers, bidding wars, and homes selling within a matter of days.
Here is how the current seller traffic (meaning number of potential sellers) compares:
A very different story. By comparison, the majority of the country is shaded gray, which represents “weak” or “very weak” seller activity. Saying that, we are starting to see more light blue appear which indicates that seller traffic is stable and not declining.
The net result continues to be a supply problem. Whenever you have high demand and low supply prices will rise. Great news for sellers, not so much for buyers. The bidding wars and rapid rise in prices we have been experiencing, although it seems like it has been with us forever, didn’t actually start in earnest until the beginning of this year.
Here is how year-over-year price appreciation in Q1 2021 looked across the country;
The silver lining to the price increases is the amount of equity current homeowners have gained. Corelogic recently reported that $1.9 Trillion worth of home equity was gained in the first quarter of this year. That is especially good news for the mortgages that remain in forbearance. If a repayment plan with the bank cannot be worked out then the vast majority of those homeowners will have enough equity to sell, pay off their obligations, and move into a new property.
Here are the latest home price trends in Frisco and Prosper looking back over the last 3 years
Although the median prices dropped slightly from April to May (month-to-month fluctuations are normal) you can see the overall trend continues up and also note that the steepest gains have been this year. (if you scroll your mouse over the line the monthly numbers will show).
When Will Home Prices Stop Rising?
Not soon enough for most buyers! As mentioned above, home prices are a direct result of supply and demand and we currently have very high demand coupled with very low supply. New home builders will build more homes this year than they have at any time in the past decade, but it’s still not enough. Every new home builder in the area is sold out of standing inventory, is operating from waitlists, and many won’t be releasing additional lots until later this year or next. Due to rapidly rising material costs and construction delays, many builders are moving to a spec home approach, which means builders will not make homes available for sale until after construction has started. Buyers will therefore not have the ability to select structural options and will have limited lot and interior option choices, or fixed choices.
For anyone that needs to make a move within 6 to 9 months, resale becomes the primary option and that has been a challenge as sellers have been slow to return to the market. One of the biggest fears sellers have is not having a place to move to when they sell their current house with so little for sale.
Even though the number of homes for sale last year was low compared to historical norms, due to Covid, the number for sale this year is even lower;
Homes for sale in Frisco - 249 (compared to 774 a year ago)
Homes for sale in Prosper - 83 (compared to 312 a year ago)
Although it is widely expected inventory will increase later this year, we haven’t seen any substantial changes locally as of yet. Nationally, inventory has increased for 3 months in a row to 2.4 months, but we are still under a month in both Frisco and Prosper as shown on the following graph:
While we haven’t seen 6 months’ worth of supply at any point over the past 3 years, which is what is needed to have a balanced market, we would see noticeable differences in our local market if inventory rose to the 2 plus month mark. Will that happen this year? Is honestly hard to say, but will most likely need demand to soften and inventory to rise to accomplish that.
Are We Heading Towards a Bubble?
With prices rising the way they have been it’s very easy to think that we are in a housing bubble, but unlike last time, the fundamentals of the market remain strong. Here is a link to a recent blog I shared about this topic. In addition, Morgan Stanley recently stated they also continue to believe the housing market is strong and not showing signs of a bubble:
In addition, a recent Gallup survey shows the vast majority of Americans still believe real estate remains the best overall long term investment:
Bottom Line
Regardless of what anyone thinks, only you can make the decision that’s best for you. It does not appear, and I don’t believe, that home prices are going to come down anytime in the next couple of years unless something unexpected happens. I do believe that interest rates will go up though. The higher mortgage rates rise the less purchasing power you will have. For example, if you are currently pre-approved for $500,000 and mortgage rates rise by 1%, your pre-approval amount will go down to $450,000. A 1% rise in interest rates reduces your purchasing power by approximately 10%. In the face of rising home prices, waiting will not get you closer to buying unless you are already in the market and are taking advantage of rising prices through equity gains in your current home.
Do you have a question or a specific situation you would like to discuss in more detail? Schedule a call and I’d be happy to share additional insights and information to help you make the best decision for you.
