Welcome to your January 2023 real estate market update for Frisco and Prosper, Texas.

After a tumultuous 2022 in our local real estate market, many potential buyers and sellers have been sitting on the sidelines wondering what 2023 will bring.

Will the real estate market take a turn for the worse?

Will mortgage rates continue to come down?

Should we expect further home price declines or is the worst behind us?

Watch the following video, or continue reading below, as I dive into the latest data paying special attention to mortgage rates and home prices;

Mortgage Rates

The overheated housing market of the past two years, which we all knew wasn’t sustainable, was partly caused by historically low mortgage rates (the other reason was ultra-low inventory, which I’ll talk more about below).

2022 was the first time in history that mortgage rates more than doubled in less than a year.

By late spring, as mortgage rates were climbing daily, buyer activity dried up quickly due to affordability and uncertainty about where the market was heading.

As a result, home prices began to fall and fell rather quickly here in Frisco and Prosper.

Mortgage rates, contrary to what some might believe, are not directly impacted by Federal Reserve rate increases.

When the Fed raises interest rates, the rate on credit cards, personal loans, car loans, home equity lines of credit, etc. are directly impacted.

Mortgage rates are actually tied to the 10-year Treasury Bill. Historically, the spread between the yield on the 10-year Treasury Bill and the 30-year fixed-rate mortgage has been 1.7 as shown below;

When the Federal Reserve cut interest rates and introduced stimulus in response to the pandemic things started to go a little sideways. The spread between the 10-year Treasury and 30-year mortgage rate increased;

The increase in the spread above historical norms was caused by uncertainty and an element of panic about the housing market and economy overall.

As inflation numbers started to come down in the fall, without the economy showing any major areas of distress, panic and uncertainty started to subside and the spread started moving toward its historical norm.

This started in late November and coincides with when we started to see an increase in buyer activity here in Frisco and Prosper.

BankRate recently came out saying they expect the 30-year fixed rate mortgage to be closer to 5.25% by the end of the year, which is about a quarter percent lower than where it would be right now if mortgage rates were following the historical spread of 1.7.

Lawrence Yun, Chief Economist at NAR believes we have turned the corner when it comes to mortgage rates;

As mentioned above, we have already seen an increase in buyer activity here in Frisco and Prosper and I can tell you firsthand that traffic at new home communities is strong and higher than we would expect to see based on what is being reported and the time of year.

Home Prices

Home prices are directly related to supply and demand. When demand fell off late last spring, it was widely believed that home prices would fall as supply increased, and to a certain extent that is exactly what happened.

Between April and the end of August, the median home price in Frisco fell by 17% and in Prosper by 14%. Since then, the median home price has remained fairly flat.

The reason home prices stopped falling is that supply started falling quickly in response to the decline in buyer demand, which wasn’t expected. Simply put, sellers who didn’t need to sell simply took their homes off the market.

On the other hand, new home builders who already had homes in the pipeline being built were quick to reduce prices and offer incentives like mortgage rate buy-downs. Those worked as all of the builders I have spoken to reported strong sales for the end of 2022 and the strong sales activity has continued into 2023.

Just this past weekend I had a new home sales counselor tell me that they are now receiving multiple offers on some of their inventory homes.

As buyer activity slowed last year, not only did the new home builders introduce incentives to move homes already under construction, but slowed, or delayed, the building of more homes until they had a better feel for how strong demand would be going forward.

Builders are currently telling me buyers are looking at between 10 and 14 months contract to close for homes that have not yet started.

As a result, many of the home price forecasts for 2023 (here is a link to a recent blog post where I shared the expert forecasts) are already being revised.

While the experts are still split, more are starting to believe we might not see further meaningful price declines and could actually see appreciation in 2023.

David Stevens, former Assistant Secretary of Housing, seems to agree;

How all of this ultimately plays out will ultimately depend on where in the country you live. Some markets could see price increases and some will likely see further declines.

Here in Frisco and Prosper our inventory of homes for sale continues to fall, albeit at a much slower pace, and I expect that we will start to see supply increase in the next couple of weeks.

Here is how supply has changed in Frisco;

To see how supply and median prices are trending overall, and even price range, CLICK HERE to see my latest Frisco Market Report and use the search bar at the top to see the latest numbers for any city/zip code in the country.

Bottom Line

Considering the growth we are experiencing here in Frisco and Prosper, the new Fields Community opening this year, the attention the PGA, and recently announced Universal Kids Frisco park is creating I honestly don’t expect we will see additional declines in our local housing market.

Could I be wrong, absolutely, but there is currently nothing in the data to suggest we are going to see additional declines.

I don’t expect we will see a widespread return of multiple offers and bidding wars, and don’t think we will see prices jump like in the last two years, but so far it looks like our local housing market will be fairly active and strong in 2023.

If you have questions or want to discuss if this is the right time for you to consider buying or selling a home, please Schedule a Call. I’d be happy to discuss your situation in more detail.

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