Over the past couple of months, talk of home prices and mortgage rates have dominated the headlines.

Will rising mortgage rates cause the real estate market to crash? How far will home prices fall?

These are just a couple of examples of headlines I have seen recently.

Without a doubt, rapidly rising mortgage rates have caused home buyers to pause and left many sellers wishing they’d sold a few months ago.

The question now is where do we go from here?

If you were thinking of buying or selling a home should you wait? Will housing market conditions improve in 2023 or decline?

While nobody knows what the future will bring, in this month’s real estate market update I share the latest expert opinions and market data to enable you to make the best decision for you and your family.

Watch the following video, or continue reading below, to learn more;

Mortgage Rates

While mortgage rates were widely expected to increase in 2022, nobody predicted them to rise as sharply, or as high, as they have.

Once rates rose above 5% we saw a dramatic decline in home buyer activity. That appears to be the threshold that caused buyers to pump the brakes on their home buying plans.

A 1% rise in the mortgage rate decreases a buyer’s purchasing ability by approximately 10%. While mortgage rates have risen over 3%, home prices certainly haven’t declined by 30%, and there’s currently no indication they will. Regardless, It’s no surprise that home sales and showing activity have declined as buyers adopt a wait-and-see approach as the real estate market searches for balance.

While higher mortgage rates have made conditions challenging, there are opportunities available in the current market as Realtor.com points out in the quote above.

In a normal year, home prices are typically highest in the spring and lowest in late fall and winter due to the seasonality of the market. The multiple offers and bidding wars that froze many buyers out are behind us meaning buyers have a better opportunity now than at any time over the past couple of years to purchase a home.

In light of slowing sales, new home builders and resale sellers have been offering financial incentives to “buy down” the mortgage rate. This essentially means the seller is pre-paying interest on your behalf enabling you to lock in a lower fixed-rate mortgage. A number of builders are currently offering 30-year fixed-rate mortgages of 4.99%. Schedule a call if you’d like to learn more about mortgage rate buy-down programs.

See the Newest Frisco Homes For Sale

While mortgage rates are expected to come back down and eventually settle between 4.5% and 5%, it doesn’t look as though that is going to happen in the near future. The latest forecasts I have seen don’t expect rates to reach that level until sometime in 2024.

Inflation is the enemy of mortgage rates. As long as inflation remains high you should expect mortgage rates to as well. In their last policy meeting, the Fed openly stated they would like to see “cooling” in the housing market, which is happening, and expect interest rates to remain elevated for an extended period to combat inflation.

Home Prices

Why not just wait for home prices to fall before buying a home?

While the majority of economists agree mortgage rates will fall, they do not agree home prices will do the same to the extent buyers would need them to in order to offset higher mortgage rates.

While home prices have fallen from their peak earlier this year, home prices are still up year-over-year and it isn’t looking as though meaningful year-over-year price declines will be experienced in the majority of markets across the country.

Ultimately, home prices are the result of the balance between supply and demand. As mortgage rates rose in the spring we saw buyer demand drop sharply. That is why we have seen home prices decline throughout the summer.

The pace of price declines has started to moderate, however, and here in Frisco we actually saw the median home price increase in September and decline from May through August.

ShowingTime, a service that tracks home showing activity across the country, noted that after falling in late spring and throughout the summer, showing activity was starting to level out indicating we might be near a bottom in terms of demand.

What Do the Experts Think?

As shown above, while Mark Fleming with First American believes we will continue to see decelerating price appreciation without annual price declines, not everyone agrees.

Ivy Zelman of Zelman & Associates, a respected voice on the housing market, believes we will see price declines over the next couple of years.

While Ivy is well respected, I should point out that Zelman & Associates also forecast home price declines in 2022, which hasn’t happened.

Here in Frisco, as of September 2022, the median home price is 20% higher than it was in September 2021.

Realtor.com also believes home prices need to fall further in order to bring balance back into the real estate market;

What’s important to note is that all real estate is ultimately local and each market will respond to the current environment differently. What happens in Boise will be different than what happens here in Frisco.

Mark Fleming with First American, who, as noted above, doesn’t believe we will see widespread price declines, stated some markets will need to adjust more than others to reflect the “new normal”;

The over-valued markets that Mark is referring to would be places like Boise, Austin, Phoenix, parts of Florida, etc. that saw home prices increase more than other areas.

One of the best ways to stay up to date on what is happening in your local market is with my Weekly Marketing Report. This report shows the latest pricing trends, inventory, days on market, etc. for any zip code/city in the country. Use the search box at the top of the Frisco Market Report to search the area you are interested in.

John Paulson, a hedge fund manager who correctly predicted the housing market crash of 2008 doesn’t see a repeat this time around;

Putting it all Together

While there is disagreement among the experts on the percentage of home price declines or appreciation, none of them are forecasting, or expecting, a crash in terms of what we saw in 2008.

Here is the latest national home price appreciation forecast for 2023;

The latest forecasts I have seen for Frisco are projecting home price appreciation in 2023 between 3% and 5%.

Bottom Line

High mortgage rates and high home prices certainly took the wind out of buyers’ sails. The question now is whether to move forward with plans to purchase or wait.

That is a question only you can answer as everyone’s situation is different. While mortgage rates are expected to decline over time, that won’t necessarily matter if home prices continue appreciating over the next few years. Buying sometime during the fall/winter cycle when home prices are at their lowest might be the best option for some.

Much obviously depends on the broader economy and how strong the job market remains in 2023. Here in North Texas, the economy remains strong and I don’t believe we will be impacted as negatively as other areas of the country.

For homeowners who have been considering selling, what to do really depends on why you are looking to sell in the first place. If you need more space and the perfect home comes on the market that could be reason enough, especially if you are able to take advantage of a mortgage rate buy-down.

If you have additional questions, or a specific situation you would like to discuss in more detail, please Schedule a Call, and let’s talk about it. I’m always happy to share my insights to help you make the best decision for you and your family.