It seems that we've been waiting for the housing market to crash all year, if not for the past several years, but is it actually going to?

To help answer that question, in this Frisco, Texas Housing Market Update for October 2023, I'm going to show you what the latest data is telling us and share what the experts are forecasting home prices to do over the next several years.

I'm also going to share an article that just came out in Forbes Magazine, all about the Dallas Housing Market and whether they think it's going to crash.

There's absolutely a ton to cover in this month's market report so watch the following video or continue reading below.

Housing Market Confusion

There seems to be an awful lot of confusion circulating about the housing market, and for good reason, the headlines have been all over the place.

The information being reported is inconsistent and very conflicting.

I talk to buyers and sellers every day and many of them just don't know what to do.

You might even be one of them.

Are mortgage rates holding you back? Home prices? Lack of affordability?

In this blog post, I’m going to take a hard look at the data, examine what home prices have done over the past year, and see if there are any signs to indicate a housing market crash is on the horizon.

The Predictions Were Wrong

We started this year with all kinds of forecasts about how far home prices were going to fall in 2023, but it hasn't happened. In fact, many areas of the country have already surpassed their previous peak prices.

Talk of a crash isn’t new. At the start of the pandemic when the economy was shutting down, a crash was forecast, which didn't happen.

Since it wasn’t the pandemic, foreclosures would cause a crash, earlier this year it was a collapse of the Airbnb market that would cause a crash, but none of those things have. Why is that?

In order for the housing market to crash, two things need to happen.

You need demand to fall and supply to increase. Both of those things need to happen in conjunction with one another to put substantial downward pressure on home prices and we haven't seen that.

Now the Fed has tried its best, right? I talk about this in more detail in this recent video.

As the Fed raised rates, the expectation was that demand would be crushed, which it was to a certain extent as home sales are way down. The belief was housing supply (inventory) would continue to increase, the necessary other half of the equation, but it hasn't.

Mortgage Rates Impacted Supply

How did they get it wrong?

They underestimated the number of homeowners that would be willing to sell as mortgage rates rose.

Nearly 71% of the outstanding mortgages in the country have a fixed rate of 4% or lower.

Why is this important?

If you own a home with a mortgage rate of less than 4% why would you sell that home to buy a new one with a 7.5% mortgage rate?

You wouldn’t and homeowners haven’t.

For many homeowners that needed to move, rather than sell, they pulled equity for a down payment out of their existing home and turned the current home into a long-term rental. Rents have been more than high enough to make sure the existing home is cash flow positive even after taking equity out.

A survey by FHFA (Federal Housing FInance Adminstration) of existing homeowners clearly shows the impact mortgage rates have on the decision to sell;

From the chart above you can see that, of those surveyed, everyone with a rate of 3% or less would not consider selling, and those with a rate between 3% and 4% would probably not sell, that 75% of all potential sellers!

Homeowners with a mortgage rate between 4% and 5% would have to think hard about selling while only those with rates above 5% ether probably would, or definitely would, sell. That’s not a very large section of the pie chart.

Frisco Housing Supply

How big of an impact has this had on the Frisco Housing Market?

This graph shows the number of homes for sale in Frisco over the past 3 years;

As of my writing this post there are 435 homes for sale in Frisco, which is 21.6% fewer than this time last year.

Looking back to 2020, you can see we had substantially more homes on the market than we do right now. If we went back to 2018 or 2019, that number is even higher. This time of year it would not be uncommon to have over 1,000 homes for sale.

This decline in supply, relative to current demand, is what has kept home prices from crashing.

Will Frisco Home Prices Ever Go Down?

That is a common question and the hope of many potential buyers.

The good news is yes, the bad news is it already happened and prices have been climbing again since.

Here’s a look at Frisco home price trends over the past 3 years;

The graph above is looking at the median sales price in Frisco, for all construction types (new homes and resale), over the past three years.

Home prices in Frisco peaked in April of 2022 at $760,000, right before mortgage rates started to climb drastically.

As mortgage rates rose, prices tumbled, You can see the sharp decline in home prices that started in May before bottoming out in November.

Buyers panicked and a lot of contracts were canceled.

Both home builders and resale sellers cut prices and offered aggressive incentives to get sales moving again.

A slight drop in mortgage rates and the aggressive incentives worked as sales, and prices, increased toward the end of 2022.

Prices eventually bottomed in February (I explain the February drop in the video above) but since May prices have actually been going up again.

In September, we had a median price in September of $700,000, still 8% below the peak, but 9% ahead of where we were last year.

Now before you start thinking, oh my gosh, prices are soaring again, we're going up 9%, 10% a year. No, we're not, the 9% increase is more a reflection of how quickly prices were decreasing in the late summer and early fall last year than in what they're actually increasing this year.

Where are Home Prices Heading Now?

Unlike last year during the frenzy when homes were selling for 10% or more over the list prices, homes are currently selling for approximately 98% of their original list price. That is important because it gives us an idea of where home prices are heading.

In this market, there aren’t any sellers out there just “testing the market”. The homes being listed today are by people who need to sell their home. With that in mind, the homes are being listed to sell.

Here is a look at the current median list price in Frisco;

In the graph above, the blue line is the 7-day average while the black line is the rolling 90-day average. The 7-day average will always be more volatile due to the change in the prices and types of properties listed for sale in any given week.

The 7-day trend line has actually been unchanged for a couple of weeks now at just under $700,000. As I just mentioned, homes are selling within 2% of their original list price currently. That means it’s reasonable to expect the homes being listed today will sell for between $685k and $700k on average.

Based on the current days on market, these homes will most likely go under contract in late October or November and close in December or January, That tells us the median sales price in Frisco starting 2024 is likely to be about $700k.

If you go back to the chart above showing median sales prices, the median sales price in Frisco in January 2022 was $700k.

Even though home prices are currently increasing year-over-year, it looks as though prices will end the year flat overall.

Could this change?

Absolutely, but right now there is nothing in the data to suggest a big drop in home prices is on the horizon.

In fact, the recent Home Price Expectation Survey (the average of the estimates by 100 leading economists and market experts) shows moderate price appreciation over the next several years;

Forbes Article

I came across an article in Forbes Magazine recently that looked at the likelihood of a housing market crash in the Dallas Housing Market.

The article covers a number of factors and is a good read if you are interested in all of the data points they observed.

Overall, here is what they concluded;

On the question of whether the Dallas housing market will crash, the data seems to point to such an event being very unlikely. As with so many housing markets across the U.S., the Dallas housing market has experienced a moderation in housing market activity, yet an outright crash doesn’t appear to be reflected in the data.

If not a crash, a bubble?

Here is what the article had to say about that;

The tell-tale signs of a bubble cannot be found in the data. As mentioned, the vast majority of the Dallas housing market has not seen a build-up in housing inventory. While many cities in the greater Dallas housing market experienced a year-over-year decline in the number of monthly home sales, in most cases this has been a longer-term trend, stretching back to the pre-pandemic days in 2018. Additionally, most homes in the Dallas housing market are selling at prices that are close to their original list price. Typically, a housing market experiencing a bubble will see a significant rise in the sales-to-list ratio — meaning that the final sale price is far above the initial list price. In the Dallas housing market, in August 2022, most cities had sales-to-list ratios that were only slightly above 100% and a year later, in August 2023, these sales-to-list ratios may have fallen but continue to be close to 100%.

Bottom Line

My goal in sharing this information isn’t to convince you one way or the other as I honestly have no idea what’s going to happen 6 months from now (neither does anyone else!). I share this information to help you cut through the noise and clutter so you can make the decision that’s best for you and your family.

There are some unique opportunities in the current market that might not exist going forward should we see and meaningful drop in mortgage rates. I share what those are in this video;

If you have questions about the current market or a specific situation you would like to discuss in more detail please Schedule a Call. I’d be more than happy to talk with you and there is never an obligation.