It’s the question on the mind of many prospective home buyers and sellers that I have talked to recently. After a crazy 2022, what does the housing market have in store for us in 2023?

The honest answer……..I have absolutely no idea🤣

But neither does anyone else! You watch a video or read a report that says one thing only to hear contradictory information in the next video, report, or news story.

If you’re feeling confused about the current market and not sure what you should do, stick with me. I’m not going to tell you whether now is, or isn’t, a good time to buy or sell a home because everyone’s situation is different, but I will share some insights and provide perspective to hopefully provide some clarity to help you make the best decision for you and your family.

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

As I mentioned above, there is a lot of contradictory and conflicting information out there right now about the housing market.

Due to their rapid rise, home prices and mortgage rates have dominated the headlines. While they both play an important role, which we’ll dive into a bit more later, unless you are a speculator or investor, home prices and mortgage rates are not the primary factor behind the buying and selling decisions of most people.

Primary Reasons For Buying or Selling a Home

This is not meant to be an all-inclusive list and isn’t in any particular order, but one of these six factors has influenced the buying or selling decisions of the vast majority of clients I have worked with over the past 20 years.

1. Getting Married - buying a home together is often one of the major goals of newlyweds as they start building their future together.

2. Growing Family - you need more space. Whether you are adding a child or an animal, sometimes you just need more space. Could be more bedrooms, a bigger kitchen, or a bigger yard.

3. Schools - your children might be approaching school age or rezoning might have taken place. Either way, schools often play a major role in where people want to live.

4. Closer to Family - a desire to live closer to family has always been a contributing factor to peoples buying and selling decisions, but the pandemic seemed to reinforce that and caused many to reconsider how far away from family they are willing to live.

5. Downsizing - now that the kids have moved out you may find yourself with more house than you need. Not wanting the expense and upkeep of a larger home drives many to sell and move to a smaller property.

6. Health Reasons - a work-related injury, aging, or even allergies can cause people to move to a different type of home or area.

A bonus 7th reason would be job relocation. In all of these situations, home prices and mortgage rates can influence the decision but are seldom the determining factor.

Once the decision to buy or sell has been made, the next step is to consult with a professional who can help guide you through current market conditions and develop a plan to help you achieve your real estate goals in the most beneficial way possible.

Home Prices in 2023

While home prices might not be the most important factor in your home-buying decision, it’s still a factor. After all, nobody wants to buy at the peak of the market.

The housing market is like a roller coaster, it goes up, down, and side to side. I can guarantee you that nobody who closed on a home in April 2022 realized they were buying at the height of the market here in Frisco.

You don’t realize you’ve hit a peak until prices start coming back down. In other words, it’s always after the fact. The same will be true when the bottom of the current market is reached. What we do know is that over time, home prices have always appreciated and will continue to do so. It all just depends on when you happen to get on the roller coaster.

Some Perspective

Talk of a housing crash, a housing correction, or a housing recession has been all over the news. Reports of home price declines of up to 20% could be seen in some of the hottest markets while other markets could see price declines of between 5% and 10%.

It’s important to remember that, in most cases, the price declines that are being referred to are from the peak. Nationally, the peak occurred in June 2022 while we peaked here in Frisco in April 2022. See the graph below;

From the peak in April, the median sales price here in Frisco has declined 16%, pretty close to expert forecasts, but notice the end of the graph turn upwards showing the median sales price in September actually rose.

It’s also important to point out that even though sales prices have declined since April, the median sales price in September is still 19.8% higher than the median sales price in September 2021. That appreciation number is expected to decline as activity, and prices, always decline in the fall and winter due to the seasonality of our local market.

Regardless of what is being reported on the news, all real estate is ultimately local and what happens here in Frisco will be different that Austin, Phoenix, Las Vegas, or Miami.

The best way to stay informed on what is happening in your local market is with my weekly market report. Here is the latest Frisco Market Report. Interested in a different city or zip code? No problem, from the Frisco Market Report, use the search bar at the top of the page to search any city/zip code in the country.

Ultimately, home prices will always be determined by supply and demand. While rising mortgage rates have certainly caused demand to soften, supply remains tight which is why we haven’t seen, or expect to see, the bottom fall out of the housing market.

Here is how supply has changed in Frisco over the past 3 years;

Rather than continue to rise as buyers pulled back, supply has actually fallen the past 2 months in Frisco. While local media has reported a dramatic rise in inventory, yes we are up 100% year-over-year, what hasn’t been mentioned is the fact inventory is only up 13% compared to 2020 and is actually down 51% compared to 2019. Historically, we are still in a tight supply market.

If you’d like additional information on where home prices are forecast to go in 2023, check out my recent blog post Should You Expect a Big Drop in Home Prices in 2023?

Mortgage Rates

While much of the focus has been on home prices, mortgage rates actually play a larger role when it comes to home affordability.

Did you know that a 1% rise in mortgage rates lowers your purchasing ability by approximately 10%?

Considering mortgage rates are up about 4% so far this year it’s no wonder home buyers have pumped the brakes. A home buyer approved for a $600,000 purchase in January, everything else remaining the same, now only qualifies for a purchase of $360,000. That’s a big difference!

As a result, many home buyers have decided to wait for home prices to come down before making a move. Even the most pessimistic home price forecasts aren’t expecting price declines large enough to offset higher mortgage rates.

The experts seem to be split on where mortgage rates are heading. I read one forecast this week calling for rates to fall to between 5.5% and 6% by this time next year, I saw another forecast, and even Fannie Mae, projecting rates will eventually settle between 4.5% and 5%, but probably not until 2024, while another forecast believes 7% is the new norm.

I personally don’t believe 7% is the new norm, but when you consider the average mortgage rate over the past 51 years is 9.1%, it’s not a bad rate, but it’s significantly higher than what we have become accustomed to.

I do expect we will see adjustable-rate mortgages (not the kind that got the market in trouble in the early 2000s) be utilized more over the next couple of years along with the 2/1 buy-down program. The 2/1 buy-down essentially lowers your mortgage rate by 2% over the current market rate for the first year, 1% in the second year, then goes back to the original rate in years 3 through 30. The idea is that mortgage rates will fall over the next couple of years allowing the borrower to refinance and lock in at a lower rate.

Bottom Line

There is no recommendation that is right for everyone as everyone’s situation is unique and different.

I do believe we will see additional price declines but, based on the information currently available, don’t see home prices falling enough to offset the rise in mortgage rates. 5.5% seems to be a threshold as we saw buyer activity drop substantially when mortgage rates rose above 5.5%. Rates at, or below, 5.5% are currently available using the 2/1 buy down or adjustable rate programs.

With multiple offers and bidding wars behind us, there is more opportunity in the market for buyers now than there has been in over 2 years. Buyers no longer need to waive appraisals or contingencies and can even negotiate seller contributions to pay for mortgage rate buy downs.

Saying that, if you are currently renting, are paying a fair rent amount, and your lease doesn’t expire in the next 6 - 12 months then waiting might not be a bad decision unless a life circumstance dictates a need to move sooner. If you do have a lease coming due in the coming months then be aware that a big rental increase to renew could be coming your way.

If you would like additional information or have a situation you would like to discuss in more detail, please don’t hesitate to Schedule a Call as I’d be happy to talk with you.

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