Home prices, and what home prices are going to do in 2023 here in Frisco and Prosper TX, have been on the mind of a number of potential buyers I have spoken to over the past few weeks.

This past weekend I had a conversation with a couple that is thinking about buying a home this year. When I asked what was holding them back, they replied they were waiting for home prices to fall further.

Being curious, I asked why they thought home prices were going to fall further. They didn’t really have an answer. They read, saw a video, had heard, just felt that…. sound familiar?

I certainly didn’t try and convince them one way or the other what was going to happen because I honestly don’t know, and neither does anyone else with certainty😀

What I do know is that home prices are directly related to the amount of supply we have relative to demand. Studying the balance between supply and demand can give us a good idea of where home prices are likely heading.

Continue reading below, or watch the following video, to learn more about what the latest data is telling us;

Home Prices and Housing Supply

We all know the price of any good or service is directly related to the balance between supply and demand. Houses weren’t the only thing that soared in price over the last couple of years, just look what happened to the price of lumber, cars, and even toilet paper at the onset of the pandemic.

Ultra-low mortgage rates coupled with the explosion of remote work caused demand for housing to skyrocket, but the supply problem isn’t new. In fact, we’ve been dealing with it for over a decade and it isn’t something that can be fixed overnight.

Supply can only come from one of two places, existing homes or new construction, and existing homeowners have been reluctant to list their homes for sale.

It’s a double-edged sword. If someone currently owns a home and has a fixed rate mortgage of 3%, why would they sell that home today and buy another with a 6% mortgage rate?

Additionally, with mortgage rates as low as they have been, and rents rising as much as they have, it made more sense for existing homeowners to pull equity out of their existing home to use as a downpayment on a new home and turn the first home into a rental rather than sell.

Either way, you end up with less supply.

The following graph shows the average amount of inventory, in terms of months supply, nationally for each year going back to 1999 (months supply refers to how long it would take for all homes listed for sale to sell at the current pace of sales.)

5 to 6 months’ worth of supply is what is needed for the real estate market to be considered balanced, the market favors neither buyers or sellers

The over-supply to see in 2006 in one of the factors that led to the housing market crash in 2008. We had high supply against low demand which caused prices to plummet.

Housing supply has been falling consistently before rising slightly in 2022 to an average of 2.7 months.

Focusing on 2022 specifically, you will see that supply started increasing as mortgage rates rose and demand softened.

Much of the news that you read, and headlines you see, are based on these national numbers, but here in Frisco and Prosper our supply numbers have generally been below that national average;

For virtually all of 2021, and the beginning of 2022, we had less than a one-month supply, and as little as half a month, which is why you saw the bidding wars and multiple offers.

As mortgage rates rose so did housing inventory before plateauing in late summer and falling again in the fall.

One reason there was so much speculation about another housing market crash was the belief that housing supply would continue to increase as demand slumped, but that hasn’t happened. As mentioned above, now that mortgage rates were higher and prices were falling, homeowners that didn’t have to sell simply took their homes off the market.

As mortgage rates stabilized and began to fall, buyers started returning to the market and we are yet to see inventory levels increase in any meaningful way. Even new home builders, that had inventory due to canceled contracts and homes already in the pipeline, are rapidly running out of homes that will be available in the next 3 to 6 months. The new home communities I have visited recently are telling me delivery timeframes for yet-to-be-built homes will be 10 to 14 months from contract signing to closing.

Inventory is up 300% Year-Over-Year

Have you seen those headlines?

While there is truth in the headline, it is doing more to confuse than clarify.

It would be easy to believe there is plenty of supply and we are on the verge of a buyers’ market, but were not.

If we look at December 2022 numbers, it’s true that inventory in Frisco was up 375% and 500% in Prosper, but that’s compared to the non-existent inventory of December 2021.

When you go back to December 2019, prior to the pandemic, we actually have fewer homes for sale now than we did then.

More Supply is Needed

One thing the experts do agree on is that more housing supply is needed to keep up with demand.

Here is a look at how many millions of homes the following organizations believe need to be built to keep pace with demand.

While resale inventory remains low, there are several new home communities in Frisco and Prosper that will either be releasing new lots or coming online in the next 6 to 12 months.

The Grove is expanding to the north side of Main St, Lexington has new lots available, and Fields will be opening their first community this spring to name a few.

The best way to get accurate, up-to-date information on our local housing market is with my weekly market report. Much of the data reported on the news is a couple of months old or more. Here is my latest Frisco Market Report. From this report, you can get the latest data and trends for any city/zip code of interest to you.

Bottom Line

The next few weeks will be telling regarding what we can expect to see this spring and summer. Currently, it looks like we are returning to a more normal pattern. If so, we should start to see inventory increase as we move into February.

I expect prices to remain fairly stable given the higher mortgage rates and general economic uncertainty that exists and will be sure to keep you updated as additional information becomes available.

If you have any questions, or a specific situation you would like to discuss in more detail, please don’t hesitate to reach out. You can always send me an email or schedule a call.