Are home prices going up?

Are they going down?

Is it ever going to be a good time to buy a home?

What about mortgage rates? What in the world is going on with them?

If these are questions you’ve been asking yourself lately, then good news as I break it all down for you in this month's real estate market update.

Continue reading below or watch the following video:

Confused Yet?

You’re not alone. The 2023 real estate market has kept everyone guessing.

That being said, my goal with this blog post is to provide you with the latest information and provide some perspective and insights so you can make the absolute best decision for you and your family.

Home Prices

Black Knight recently said the following;

How can that be?

Weren’t home prices expected to fall in 2023?

You may recall back in December, 2022, the experts forecasts home prices across the country would decline anywhere between 0.6% and 20%.

Not only didn’t that happen, but the same experts are now predicting home prices in 2023 will actually increase by up to 6%.

That’s a big change!

What often adds to the confusion surrounding the direction of home prices is talk of accelerating and decelerating home prices.

Here is a graph showing the average month-over-month home price appreciation over a 49 year period, from 1973 to 2022;

As shown, home price appreciation starts off relatively flat at the beginning of the year, picks up substantially during the spring busy season, before tapering off again in the fall and winter.

So when you hear the term home price deceleration, that doesn’t mean home prices are falling, but the pace of appreciation is slowing.

Think of it like driving your car. As you push on the accelerator your speed increases, when you take your foot off the gas you start decelerating. It doesn’t mean you instantly stop, but your speed slows. That’s how appreciation works in the real estate market over the course of the year.

Going back to the historical month-over-month price movement graph, here is how 2023 has looked compared to the average;

We started the year out slow, below average, then prices started to accelerate through the spring before returning to historical norms over the past couple of months.

A Buying Opportunity

One takeaway from this information is that, if you are able to make a move in the fall and winter months, they often offer some of the best opportunities. There is less competition, homes are not selling as quickly, and price appreciation has slowed. Sellers selling in the fall and winter usually have a compelling reason for doing so and are often more negotiable.

This is especially true for new homebuilders who often offer additional incentives to have sales closed by the end of the year.

CLICK HERE to See All New Construction Homes For Sale in Frisco and Prosper

Why Didn’t Home Prices Fall

As mortgage rates soared weren’t home prices supposed to fall?

Soaring mortgage rates is what caused the experts to make the home price predictions they made last December.

Ultimately, home prices are determined by the balance, or imbalance, between supply and demand. The belief was soaring mortgage rates would negatively impact demand, which they did, hence all the reports of home sales being down.

What wasn’t expected was for supply to fall. The initial belief was supply would keep rising as demand fell putting downward pressure on home prices. All those homeowners with mortgage rates below 4% decided it was no longer worth selling to buy a new home with an 8% mortgage. As a result, supply also fell so there wasn’t the imbalance between supply and demand to cause meaningful price declines.

Although supply did increase year-over-year, it is still well below what we usually see as shown on the following graph showing inventory levels over the past 5 years;

The Affordability Problem

Charts and graphs are great an all, but do little to help people buy a home is a very challenging real estate landscape.

Affordability has become a real problem and it’s obvious something needs to give.

The following graph shows just how much more expensive it is to buy a home now compared to just a couple of years ago;

The mortgage payment to buy the median priced home, based on national numbers, has gone from $1,011 in January 2021 to $2,234 in August 2023. An increase of 65%. I personally don’t know anyone whose household income has increased by 65% over the same period of time.

Should You Wait?

Affordability is comprised of home prices, mortgage rates, and income. In order for affordability to improve, either home prices or mortgage rates need to fall, income needs to go up, or a combination of all three needs to happen.

Home Prices

We are late enough in the year to start to get a glimpse of what home prices here in Frisco are going to look like in the 1st quarter of 2024.

Based on sales data from the local MLS, the majority of homes have been selling for between 97% and 98% of original list price. This percentage has been holding fairly steady and tells us most homes are being listed at a price to sell.

With that in mind, here is how list prices are currently trending in Frisco;

Although list prices have been trending down, which is normal for this time of year, the 7-day trend line (dashed line) has been holding steady for the past couple of weeks.

CLICK HERE to see the complete Frisco Market Report

Depending upon price range, homes are currently selling in 35 to 65 days of being listed.

That tells us these homes should go under contract sometime in December or January and will close in January or February.

The current median list price is $700,000. Considering homes are selling within 3% of list price, the median closed sales price in January or February 2024 should be somewhere between $680,000 and $700,000, or continuing to trend upward at a moderate pace.

Mortgage Rates

Since it doesn’t appear as though there will be any meaningful home price declines in the months ahead, how about mortgage rates?

Mortgage rates are extremely difficult to project. Although they were widely expected to fall this year, they didn’t, even though we did see some rate relief last week.

The current projects are for rates to fall into the high 6s or low 7s by the end of next year.

For perspective;

In 1972 mortgage rates were 7.45%. If you had waited then for mortgage rates to fall you would have waited until 1993. During that time the median price of a home went from $29,000 to $144,000😳

Opportunities Do Exist

While it may seem that we are in an impossible situation, opportunities do exist if you know where to find them.

Mortgage rates move the needle more in terms of affordability than home prices do (I explain why in this Video) and the new home builders understand this.

The vast majority of new home builders are currently offering incentives geared towards mortgage rate relief in the form of temporary, or permanent, mortgage interest rate buy downs. It’s also possible, on certain homes, to get both price and mortgage rate relief.

Schedule a Call if you’d like additional information or would like to discuss the current market in relation to your specific situation in more detail.