Now that we are in mid-March I certainly hope that the cold weather is behind us🥶

One thing that didn’t show any signs of cooling, but stayed red hot throughout the winter months, was our local real estate market.

As a matter of fact, the market has been so active, and prices have been rising so fast, many are starting to wonder if they should pump the brakes on their home-buying plans in the hope the market will cool and prices will come back down to earth a little bit.

In a recent survey, a whopping 77% of respondents believe the housing market is currently in a bubble. While a housing bubble is not the topic of this week’s post, I did talk about whether we are in a housing bubble in this recent blog post.

This week’s blog is all about home prices!

Can real estate still be considered a good investment and is now a good time to buy a home?

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

Home Prices

I'd like to start by saying the information I share with you here today isn't to try to convince you about the current market one way or the other.

I can't, and won’t, do that.

Only you can make the decision that's best for you and your family. My goal is simply to share information based on the latest facts and data so you have the information you need to make that best decision.

What I can tell you is that everyone has to live somewhere, whether that be a friend’s couch, your in-laws, or with your parents.

For many, the alternative to buying is renting, but you may have noticed that home prices are not the only thing that has been going up. Rents are going substantially fast as well. Either way, you’re paying a mortgage. The question is, whose mortgage are you going to pay? Yours or your landlords?

I realize the decision to rent or buy isn’t always that black and white. For the vast majority of people, homes are purchased around life events - a growing family, a shrinking family, getting married, a job relocation, etc., not current market conditions. The right time to buy or sell is when it’s the right time for you to buy or sell.

Saying that I realize there's always that question, or fear I should say, about people not wanting to buy at the top of the market.

So are we at the top? Are we at the top of the market? Are we about to see a big correction?

I honestly don't think so and I invite you to check out my recent housing bubble blog post to learn why.

Supply and demand are what have been driving home price appreciation and this really started to accelerate after COVID. When offices closed as a result of the pandemic remote work went from frowned upon to a necessity. Many companies have now made remote work permanent for a number of positions, which has allowed people to migrate from high-priced areas to lower-priced areas in ways they never could before. At the same time, record-low mortgage rates served to add fuel to the housing demand fire.

Increasing demand, paired with falling supply, is what has caused home prices to jump and if it feels like prices have been going up even faster lately, it’s because they have.

In January 2021, year-over-year price appreciation was averaging 10% annually. The pace of appreciation continued to rise month-over-month until July, when it basically flattened out until December, before jumping again in January 2022.

If we were to match this graph against mortgage rates you would see the parallel. Mortgage rates fell below 3% at the beginning of 2021 and continued falling through May/June. Note that we didn’t start to see multiple offers and bidding wars appear here in the local Frisco/Prosper market until February 2021 (it just feels like it’s been that way forever).

Mortgage rates started to rise again over the summer, stayed fairly stable in the 4th quarter, then rose again near the end of the year. The rising rates at the end of the year caused many buyers who had been sitting on the fence to jump into the market and price appreciation started to accelerate once again.

Here is a look at home price appreciation last year by state;

As mentioned above, the rise in home prices is directly related to falling supply in the face of rising demand. In each of the areas we operate, Southern CA, Phoenix, AZ, and here in Frisco and Prosper, TX we are seeing the exact same thing.

Let’s take a closer look at the Frisco market to demonstrate this point. Here is how average sales prices in Frisco have changed over the past 3 years;

Just like what was shown in the first graph, notice how home prices, which had been appreciating at a steady rate since January 2019, suddenly shot up in February 2021 (when the bidding wars started), before treading water in late fall, early winter, then jumping again at the beginning of this year.

Here is how the supply of homes for sale in Frisco changed over the same period of time;

A very similar pattern to what we saw with home prices, only inverted!

In January 2019 there were over 900 homes for sale. At the same this year there were right around 100. The number of people living here, and demand, certainly hasn’t gone down during that period of time.

This past week, we saw an increase in inventory for the first time in a long time. The inventory increase was not only experienced here, but in many markets around the country, and I certainly hope this continues as we move further into the spring. While rising mortgage ramps might help reduce demand slightly, we won’t see any major changes in our local market until supply increases.

Each week, Troy and I release a market report that shows how active our local market is. Here is what the top summary part of the report looks like;

If you’re wanting to keep an eye on our local market, but don’t want to geek out over numbers, charts, and graphs, then this is the report for you.

If you look at nothing else, keep an eye on the Market Action Index, the dial that looks like a speedometer in the center-left of the picture above. That index goes from 0 to 100. The closer to 100 it is the hotter the real estate market is.

A reading over 30 indicates market conditions favor sellers and as you can see, this week’s reading in Frisco is 97!

This report is updated every Monday and the “Search” feature at the top allows you to look up any City or Zip Code in the area, or the country.

Check it out for yourself and feel free to subscribe to have it emailed directly to you each week. This is a great way to keep an eye on market conditions if you’re planning on buying or selling a home. Frisco Market Report.

Is Now a Good Time to Buy?

Considering how hot the market is right now and how fast home prices have risen over the past couple of years, is now a good time to buy?

As mentioned above, only you can make the decision on when the right time to buy is, but let me ask you this- if you could have, do you wish you’d have bought a home 5 years ago knowing what you know now?

Here’s a look at how home prices have increased, cumulatively, over the past 5 years;

While we certainly haven’t done badly here in Texas, look how much home values in Arizona, Utah, and Idaho have changed over the past 5 years!

When I bought my first home in the mid-1990s I never gave any thought to what the market was doing. I bought the home because I was tired of renting and wanted a place of my own. I didn’t think I could afford it and wasn’t able to buy where I wanted to because prices had gotten too expensive. As it turned out, home prices went down in the 3 years after I bought the home, but it didn’t matter because I wasn’t going anywhere. I bought when it was the right time for me to buy.

Even though I thought I would only be in that home for 2 to 3 years I ended up staying 9 years. When we did sell, we ended up just fine. The house had built up a nice amount of equity and we were able to move into our new, larger home.

Knowing what I know now I only wished I’d have kept it and turned it into an investment property. Here is how home values have changed since 1991;

The bottom line is you need to do what’s right for you and the best decision will be different for everyone.

Over time, real estate has proven to be one of the best long-term wealth builders available.

The good news locally is that I do think the crazy market we are currently experiencing will start to settle down. As more new home communities come online, and more supply comes to market, which hopefully has just started, more opportunities for buyers will be created. I don’t think we will see home prices come down, at least not based on anything we are seeing so far, but do think we will see the pace of appreciation drop from the sky-high levels we have seen over the past couple of years.

Here is the latest forecast for 2022 home price appreciation from the experts;

What is interesting to note is that most of these projections have been revised upward over the past couple of months. In the previous survey, Zelman & Associates were projecting prices to decline slightly in 2022 and are now forecasting an average national increase of 3%.

Bottom Line

More opportunities will appear as we head further into this year, but you may need to adjust your expectations and be open to additional possibilities. If you’re hoping to find a new construction home for under $600,000 within Frisco I think that ship has sailed. Several builders I have been in contact with over the past month are expecting the new home communities that will be coming online later this year and next to all have starting prices over $700k. Lower priced opportunities will be available in Little Elm, Aubrey, Celina, and Melissa.

If you have additional questions or would like to talk through what options are available for your unique situation, please schedule a free call with me or send an email to Contact@S2RealEstateTeam.com