After 2 years of running flat out, it appears as though our local housing market is finally starting to take a breather.

For those of us actively involved in the market every day, it actually feels more like it’s come to a screeching halt….open houses with few visitors, homes staying on the market longer than 2 hours, etc.

I’m exaggerating, but market conditions today are quite different from where they were just a month ago.

What does it all mean and where are we heading next? The million-dollar question, but I share the latest data and market insights below or in the following video;

The pace of change in the local housing market has caught many potential buyers and sellers off guard.

We’ve gone from new construction communities with waitlists of hundreds of names to builders offering increased closing cost assistance and mortgage rate buy-downs. Resale homes are not receiving multiple offers in the first few hours of being listed and price reductions are becoming much more common.

A Housing Market Correction or Crash?

While these changes have come on much more rapidly than originally expected, are they signs of a market correcting and going back to normal or the beginning of a crash?

There is definitely no shortage of headlines out there forecasting doom and gloom, but when you dig beneath the headlines the vast majority of opinions about what’s next are nowhere near as dire.

My goal here is not to try and convince you one way or the other, but to provide you with the latest data and information so you can make the best decision for you and your family.

Real Estate Market Cycles

I came across an article in Business Insider last week that did a great job of breaking down real estate market cycles. Here’s the link to it.

The article explains there are normally four phases to a real estate market cycle; expansion, hyper-supply, recession, and recovery.

While there’s no doubt we’ve had expansion, and there is increasing talk and speculation of a coming recession, we seem to be skipping hyper-supply?

Todd Metcalf, senior economist at Moody’s Analytics, said the nation’s lack of available housing inventory is throwing the cycle for a loop.

“In the typical narrative the “hyper-supply” is because construction companies over-build, and there becomes a glut of housing units. This occured during the housing bubble preceding the Great Recession. However, at the national level we still see a severe housing shortgage.”

Even though we have seen a tremendous amount of new construction here in Frisco, Prosper, and the surrounding communities, we haven’t seen enough to satisfy demand. The DFW Metroplex created 275,800 new jobs last year and Beazer Homes recently announced their forecasts show that approximately 50,000 new homes per year need to be built to satisfy local demand.

Meanwhile, residential construction recently fell to its slowest pace since April 2021, not because of lack of demand, but because supply chain issues have increased the length of time it takes to build a home. Nationally, the housing market needs millions of homes to be built to satisfy demand.

Instead, Metcalf believes the housing market is entering “demand exhaustion” due to rising mortgage rates and potential buyers simply being exhausted by what they have gone through the past couple of years.

“This occurs not because demand has gone away, but because rising interest rates have made it so that many people can no longer afford to buy a new home.”

This sort of burnout won’t lead to a crash or dramatic price drops, but instead modest declines that will depend largely on where you live. According to Moody’s and CoreLogic, and as explained in last week’s blog post, the chances of price declines in the DFW area in the next year are considered very low, which equates to a less than 20% chance.

Supply and Demand

The single biggest factor driving home price gains has been the imbalance between supply and demand. Although supply is increasing, we still have a long way to go to get back to normal here in Frisco as shown on the following graph;

The graph above shows the 7-day rolling average of homes for sale in Frisco. Although the number has been increasing each week since March, we still have 66% fewer homes on the market than we did at this time in 2019.

The graph above shows just one of the data points we track in our Market Reports. This information is available for any city/zip code in the area. Click Here to see our latest market report and you can subscribe to have updates delivered to your inbox each week.

Buy Now, Sell Now, Wait?

Only you can make the decision on whether now is a good time to buy or sell.

For buyers, the biggest challenge is affordability. a 1% increase in mortgage rates decreases your purchasing power by approximately 10%. That means you can buy 25% to 30% less house today than you could at the beginning of the year.

That is understandably a difficult situation especially as home prices are continuing to rise, albeit at a slower pace. It doesn’t help that rents are rising just as fast as home prices. With the market softening and more homes becoming available, there are a few strategies we can use to help solve the affordability question.

For sellers, homes are still selling, but how your home is presented, marketed, and priced is becoming more and more important. Days on market are increasing and showings are decreasing.

If you have any questions about current market conditions, buying a home, or selling a home, please give us a call at 469-296-5230 or email at Contact@S2RealEstateTeam.com and we’d be happy to share how we are helping buyers and sellers navigate current market conditions.