Welcome to your Frisco and Prosper Real Estate Market Update for December 2022.

It’s hard to believe we are almost at the end of the year.

The first few months of 2022 saw the frenzy in our local real estate market come to an end while mortgage rates, specifically rapidly rising mortgage rates, have been the story since then.

This month’s real estate market update is going to focus on the rise in mortgage rates, the impact on affordability, including an interesting comparison between this year and last, then close out by sharing the latest predictions for what we might expect in 2023.

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

Mortgage Rates

The rapid rise in mortgage rates has been the story of 2022. Never before have mortgage rates doubled in such a short period of time.

This rise in mortgage rates acted as a one, two-punch to potential buyers on the back of the home price increases we saw over the past could of years.

Mortgage rates started the year at 3.22% before climbing to over 7% in October.

After rising rapidly, over the past 4 weeks mortgage rates have fallen at their fastest pace seen since 2008. To say mortgage rates have been on a roller coaster in 2022 would be an understatement.

Inflation is the enemy of long-term interest rates. As inflation has eased over the past few weeks, so have mortgage rates with many, including Glen McBride of Bankrate, believing rates will continue to ease assuming inflation continues to come down;

The vast majority of the forecasts I have seen are expecting mortgage rates to hover around 6% for the first half of 2023 before ending the year back in the mid to upper 5s, before falling further in 2024.

The number I am keeping an eye on is 5.5%, as once rates rose above 5.5% buyer activity slowed noticeably.

How the real estate markets perform in 2023 will largely depend on what happens with mortgage rates.

Affordability

As mentioned above, home buyers have endured a one, two-punch with rising mortgage rates on the back of rapidly rising home prices. Not surprisingly, many potential buyers have been sitting on the sidelines waiting for home prices to come down.

The common belief is home prices need to come down in order for homes to become more affordable.

If 2022 has been the year of rising mortgage rates, 2021 was the year of multiple offers and bidding wars. Rising home prices and bidding wars did little to slow the market while mortgage rates were 3%, but rates in the mid-6s with no bidding wars and falling prices have slowed the market noticeably.

Here’s where it gets interesting. Were homes really more affordable last year?

Take a look at the following graph comparing the two markets. Both examples assume a list price of $550,000;

Both of these examples assume a conventional loan with a 20% down payment and show the PITI payment along with the cash needed to close.

Are you surprised the difference in monthly payments is only $16?

In the current market, you don’t need as much money to close, don’t need to waive the appraisal contingency, can negotiate repairs, and even get the seller to contribute funds towards an interest rate buy down in many cases.

There is actually more opportunity in the marketplace today than there has been since before the pandemic and this doesn’t include new construction, where substantial incentives are being offered by many of the builders.

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Looking Forward to 2023

If bidding wars were the story of 2021 and mortgage rates of 2022, it seems that uncertainty is the story as we head into 2023.

Will home prices fall further? Will mortgage rates come down? Will there be a recession?

The experts don’t seem to know themselves. Looking just at home price expectations for 2023, I’ve seen forecasts ranging from a drop of 20% peak to trough, to prices increasing between 3% and 4%.

These predictions are all for the national market and, as we know, all real estate is local.

Ultimately, home prices will be determined by the balance between supply and demand. Demand dropped substantially as mortgage rates rose and caused home prices to fall here in Frisco and Prosper over the summer.

Frisco’s market peaked in April and Prosper’s in May. The median sales price in Frisco fell 17% from April’s high to August and 13% in Prosper from May’s high through August.

Home prices since August have essentially been treading water as shown on the following graph;

Frisco is represented by the blue line and Prosper by the red line. Our pricing peaks are indicated by the red circles and the yellow circled bar to the right side of the graph shows how median home prices have essentially been flat since August.

As mentioned above, pricing is determined by the balance between supply and demand. While demand dropped as mortgage rates rose, supply has also been falling which helped create balance in our local market. Overall activity has definitely slowed, but conditions are showing signs of normalizing.

Let’s face it, for homeowners, most of whom have mortgages locked in below 4%, there is little incentive to sell and trade that mortgage for one at 7% unless you have to.

Local housing supply, which is up compared to the last two years, is currently similar to what we saw towards the end of 2019 as shown on the following graph;

While I personally believe we could see a little more softening in prices over the coming months, I don’t expect to see further steep declines unless something unexpected happens, and believe home prices will be fairly flat in 2023.

A new forecast just released by Realtor.com shows they are expecting total sales in the DFW area to increase by 3.1% in 2023 and are forecasting home prices to increase by 2.2%. CLICK HERE to see the full report.

While nobody knows what the future holds, and only you can make the best decision for you, the best way to make an informed decision is to subscribe to my Weekly Market Report, which shows the latest trends and market stats.

Here’s a link to the latest Frisco Market Report. You can see the latest data for your city or zip code by using the search bar at the top of the report.

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