You’ve seen the headlines.

You’ve heard the negative news.

Anyone would think the housing market was teetering on the edge of a cliff about to come crashing down, but it’s not! At least not in the foreseeable future.

Continue reading below, or watch the following video, as I share the latest data and explain why the housing market is not about to crash;

What Goes Up, Must Come Down

We can all agree the housing market of the past couple of years wasn’t sustainable but does that automatically mean it’s about to crash?

Emotion, or maybe just wishful thinking on the part of home buyers, would say yes, but the actual housing data is telling a different story.

Crashes, whether in real estate or the stock market, typically happen when prices are driven up rapidly due to overexuberance or rampant speculation. That hasn’t been the case over the past couple of years. The vast majority of homebuyers have been end users and pricing has been directly related to supply and demand.

The Role of Supply and Demand

When the pandemic restrictions were eased in June 2020, despite predictions of a foreclosure-led crash then, the housing market took off on the back of explosive buyer demand (thanks to ultra-low mortgage rates) against an already short-supplied housing market.

Talk of a crash got louder following the drop-off in buyer demand this past spring. The interest rates that led to the surge in demand previously were now responsible for the decline in demand following their rapid rise over the spring.

Supply had already started increasing and foreclosure starts were resuming (more on that shortly) leading many to believe we would soon have an over-supplied market against rapidly declining demand and thus a crash.

Here is how current supply compares to previous years;

Although supply has increased, you can see that we are still below all years, except last year, going back to 1999, and have significantly less supply than during the crash years, shown in red. It’s worth pointing out that 6 months of inventory is what is customarily required for a “balanced” market.

While there have been plenty of headlines about increasing inventory, some perspective is needed. Supply is definitely higher than it was a year ago, it’s still below where we were in 2020 and look how far behind 2019 (the last “normal” year) we still are.

Despite expectations of inventory continuing to rise, the latest data is showing us inventory is actually starting to plateau. The drop in new listings coming to market is significant enough that forecasts for how many homes will be for sale at the end of the year are currently being revised down, and without a significant increase in supply, there won’t be a crash based on current, even though lower, demand.

Media reports make it sound as though home buyers have gone into hibernation. Even though demand has softened, we are still seeing homes sell fairly quickly here in the Frisco and Prosper areas and new home communities are experiencing strong traffic and solid sales numbers.

While there has been an increase in contract cancelations, the vast majority of homes, including new construction, are going back under contract relatively quickly.

What About Foreclosures

Supply will change when foreclosures hit the market, right?

Although foreclosure starts are up substantially from last year, keep in mind there was a moratorium in place preventing foreclosures as a result of the pandemic.

It’s also important to note that foreclosures are part of every real estate market every year, good or bad.

Here’s a look at foreclosure activity, by year, going back to 2008.

By comparison, here’s a look at foreclosure activity in the first half of the year over the same time period, but including this year.

While higher than last year, foreclosure starts in the first half of 2022 are lower than any of the previous 14 years.

Additionally, considering how much home values have increased over the past couple of years, if a homeowner was truly in trouble the house could most likely be sold traditionally and the loan paid off in full. Why would anyone walk away from equity if given a choice?

Home Prices

But the housing market is already starting to crash, I see price cuts everywhere.

Price adjustments, and a housing market crash are not the same thing. Many sellers who have to sell priced their homes based on the market we were in, not currently in. As a result, price adjustments needed to be made in order to generate activity. Homes that represent a good value in the eyes of a buyer are still selling fairly quickly, just not receiving multiple offers any longer.

While prices have come down from where they were a few months ago, leading to month-over-month price declines, prices continue to appreciate year-over-year, albeit at a slower pace than we have been experiencing.

Black Knight, a financial services company that provides data analytics on the real estate market, recently had this to say:

This is why it’s so important to look behind the headlines.

As an example, even though the average price per square foot in Frisco is down from where it was a couple of months ago, you can see that it is still well above where it was this time last year.

The majority of the experts, based on the latest market data, have revised their year-over-year price appreciation forecast up from what they had forecasted this past January.

While most of the forecasts have doubled the amount of home price appreciation expected in 2022, only the Mortgage Bankers Association revised their forecast down, but still expect year-over-year price appreciation.

Here in Frisco, the latest Zillow forecast is calling for approximately 11.5% price appreciation over the next 12 months.

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Bottom Line

The truth is nobody knows for sure what is going to happen over the next year or more. My goal here is not to try and convince you one way or the other, but to provide you with the latest information and data so you can make the best decision for you and your family.

Personally, here in the Frisco area, I wouldn’t be surprised to see home prices decline a little further from where they were a few months ago and then see appreciation be fairly flat over the coming year.

As it stands now, there is nothing in the leading indicators, and nothing that I am seeing in the market currently, to indicate any type of significant correction is going to happen in the foreseeable future.

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