I hope you had an absolutely amazing Thanksgiving.

Even though I came down with the bug that’s been going around, I was able to meet with friends and people we haven't seen in quite a while, many from different areas of the country.

That always leads to some great conversations. As usual, talk about the housing market took place and it was amazing to hear the different viewpoints of the people that I met. Everything from signs the market is stabilizing to the market is about to crash hard.

While there are lots of different opinions out there, the honest truth is nobody knows for sure exactly what’s going to happen.

The most common question people had was what the impact of a recession was likely to have on the housing market. I thought it was a great question so decided to make it the topic of this week's blog post.

Watch the following video, or see below, to learn more;

As I was doing my research for this blog post I came across an article in Forbes titled “Even a Recession Will Only Help Home Prices So Much.” I review the article in detail in the video above.

In speaking with potential home buyers over the past couple of months, a common thought, or maybe hope, is that home prices are going to crash. After all, those headlines have been all over the media for quite some time now.

What goes up, must come down!

As the article points out, the rise in home prices we saw from mid-2020 until mid-2022 was unprecedented. Nationally, during that time period, we saw home prices rise by 39.3%. Here is Frisco and Prosper we saw the median home price increase by approximately 60% from June 2020 to June 2022.

Given that rise, it only seems natural that a correction must come next. The question now is, how far will home prices fall?

The housing market crash in 2008 was the largest decline in home prices we had ever seen. As the article states;

“Enormous crash fueled by millions of people that lost their home to foreclosure, frozen credit markets so money wasn’t available to most, and lenders straight-arming the entire mortgage market.”

During that time, home prices declined by an average of 19%. The article goes on to say;

“If that same fall happened again now, that would bring the national median home back to $363,933, which would still be 13% higher than the median sales price at the end of 2019.”

Here in Frisco, home prices have already fallen 18% from their peak in April 2022, but are still 12.5% higher than they were a year ago and 34% higher than they were at the end of 2019.

In Prosper, home prices have fallen 16% from their peak in May 2022, but are still 13.5% higher than a year ago and 39% higher than at the end of 2019.

The general consensus from the experts is that home prices will fall anywhere from 5% to 20% from their peaks earlier this year.

“Unlike after the Great Recession, lenders have been more careful. There isn’t a massive wave of foreclosures waiting to happen. No investment banks are sitting on worthless derivatives that are going to make things come crashing down in anywhere near the same way. The country still has a chronic shortgage of homes, a gap of millions of units, as not enough has been built in the last 15 years to keep up with needs. Homebuilders could try to address that, but they can’t sell off the homes they have fast enough, so planning on constructing more going into next year doesn’t make sense.”

How Much More Will Prices Fall

As we wind down 2022 and head into 2023, the question becomes how much further can we expect prices to fall here in Frisco and Prosper?

It is normal for us to see price declines in the 4th quarter, which is traditionally the slowest time of the year. Even though we have seen prices decline from their highs in April in May, prices have actually been fairly stable for the past several weeks.

The recent decline in mortgage rates resulted in an uptick in mortgage applications, an indicator of demand, while the number of homes for sale has continued to decline. The result has been a stabilizing of our local housing market.

We have also seen the new home builders get very aggressive in the incentives being offered to sell existing inventory and I expect the pace of new home construction will be relatively flat next year.

Here is the Median Home Price tracker from my Frisco Market Report. As you can see, home prices have been fairly stable over the last several weeks. The dotted line shows the 7-day average while the solid line shows the 90-day trend, which is flattening.

If you click on the report you can all the latest trend information, broken down by price range, as well as search any city/zip code in the country.

Bottom Line

While nobody knows for sure exactly where this market is heading, the latest numbers do indicate the local housing market is starting to stabilize. The percentage of homes receiving a price reduction before going under contract is also starting to come down, a leading indicator that prices are stabilizing.

Personally, based on the level of activity I wouldn’t be surprised to see a further softening of home prices in our local markets but don’t expect we will see the type of declines many buyers are hoping for.

The latest forecast from Zillow for 2023 shows home prices increasing 3.2% in Frisco.

If you have questions about the market, or a specific situation you would like to discuss in more detail, please Schedule a Call with me.

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