What a crazy month it has been in the Frisco Real Estate Market🤪

We knew things were changing. We knew the market was starting to shift. We just didn’t know it was going to change so fast.

Open houses that no longer look like a Black Friday sale, weekends with no showings on some homes, and new home builders suddenly offering incentives again…who’d have thought!

In this month’s real estate market update we are going to focus on three areas;

• How will a potential recession impact the housing market?

• What’s going on with mortgage rates?

• How are home prices likely to be impacted going forward?

Continue reading below, or watch the following video, to learn more.

Are we in a Recession?

The mainstream media seems to be full of conflicting information right now. In just the past couple of weeks, I’ve read several articles that contradict and confuse rather than provide any sort of clarity.

I believe that is one of the main reasons we have seen such an abrupt change in market conditions - buyers and sellers simply don’t know what to do or who to believe.

Real estate is primarily bought and sold on emotion, and the emotion many are feeling right now is fear, or at least uncertainty.

I’m not going to pretend to have all the answers or try to convince you one way or the other. Instead, I’m going to share the latest data and provide some perspective to help you make the best decision for you and your family.

The Federal Reserve is in a challenging position right now. Chairman Powell has openly said he wouldn’t mind seeing a reset in the housing market. Understandable, right? Home prices have jumped substantially over the past couple of years and with the interest rate increases, we are in a situation that simply isn’t sustainable.

At the same time, we have 40-year high inflation and the primary weapon the Fed has to tame inflation is to raise interest rates. Raise them too quickly and you could send the economy into a recession, which some have suggested we are already in. We will know more when the second-quarter GDP numbers are released in the next week or so. Don’t raise them enough and inflation will be like an out of control brush fire.

If there is a silver lining it’s that recessions are usually good for mortgage rates.

While the Fed doesn’t directly impact mortgage rates, the actions of the Fed impact the bond market, specifically the 10-year Bond, which does directly impact mortgage rates.

While mortgage rates have increased substantially this year, we have also seen them fall over the past 10 days.

Here is the impact previous recessions have had on mortgage rates;

Housing Market is Returning to Normal

There has been plenty of talk about a housing market crash and speculation we are about to repeat 2008, etc., but there is nothing in the data to suggest that currently. While the change has been abrupt, you have to keep in mind how accelerated the housing market has been over the past couple of years.

Are homes sales down year-over-year and have rising mortgage rates caused buyers to pause, yes, but some perspective is important.

As you can see, home sales are projected to be lower than in 2020 or 2021, but when compared to the three years prior to the pandemic, which were all good years for real estate, home sales are right in line with where they were then.

This shouldn’t be viewed as a bad thing, but exactly the type of cooling we needed to see.

Going forward we should expect to see longer days on market, fewer multiple offers and bidding wars, and more incentives to entice buyers.

What About Home Prices

I have spoken to several buyers over the last couple of weeks who have stated they are going to put their home search on hold and wait for home prices to fall.

While I do believe we will see decelerating price appreciation and an increase in price reductions that doesn’t mean we should expect to see home prices in a free fall.

Low inventory (supply) against high demand is what caused bidding wars and rapidly escalating prices in the first place. If a home was listed for $500k but sold for $625k, that doesn’t automatically mean home prices in that particular neighborhood went up 20%+ in the space of 30 to 45 days. It means that home was worth a premium to that particular buyer.

If you’ve seen any of my previous blogs, or videos, you’ll know the dramatic imbalance between supply and demand is what caused home prices to increase as rapidly as they did.

Even though the median home price in Frisco has declined for 2 consecutive months now, the median home price is still up 25% year-over-year.

As Dave Ramsey recently said on his radio show;

Love him or hate him, he’s correct on what drives prices and what we are seeing in the market right now.

Currently, even though rising mortgage rates have softened demand, we are still a long way from seeing true balance return to the housing market.

Here’s a look at supply in the form of new construction completions going back to 1970;

The dotted line represents the average number of new homes built each year.

Look at how many fewer homes were been built between 2008 and 2021 compared to the historical average. We have been undersupplied for 14 consecutive years.

The only other place inventory can come from is existing homes and we have two challenges there.

• Current homeowners have limited options on what to buy as a replacement.

• If current homeowners have a 3% mortgage rate are they inclined to sell their existing home to buy a new one at 6% or make due where they are a little longer?

On the demand side of the equation, even though rising mortgage rates have caused some buyers to pause, the size of the population at prime homebuying age has never been larger;

The area outlined in blue represents the Gen Z and Millennial population who are currently in what is considered to be the peak homebuying years.

This is the largest population reaching peak homebuying years we have ever seen coinciding with the lowest prolonged stretch of new housing supply being created.

Bottom Line

Market conditions are changing daily and the honest truth is nobody knows for sure what tomorrow will bring.

Now, more than ever, decisions need to be made based upon fact, not fiction. One of the best ways to stay informed on what is happening in our local market is through our Weekly Market Updates. These reports are updated each and every week based on what is actually happening in the market. At a glance, you can see if the market is getting hotter or continuing to cool down, which way pricing is heading, and what inventory is doing. Check out the latest update here.

If you’re confused about the current market or want someone to bounce ideas off of, give us a call a 469-296-2530 or email Contact@S2RealEstateTeam.com as we’re always happy to share our thoughts and insights with you.