In a recent Fannie Mae survey, nearly one in four Americans expressed belief that home prices will fall in the next year, even though 2023 saw an overall increase in home prices across much of the country. This perspective isn't surprising given the often conflicting information presented in the media.

In this last real estate market update of the year I’ll try and help provide some clarity and share my thoughts on what to expect in 2024.

Watch the following video, or continue reading below, to learn more:

National Real Estate Trends and Forecasts

Despite the mixed signals, 2023 concluded without the drastic price drops predicted by many. Instead, the market experienced a general stability, with only a few areas witnessing significant declines.

Looking ahead to 2024, the forecasts are more conservative, with expectations ranging from slight appreciation to minimal depreciation as shown on the following graph:

The forecast I tend to believe the most is the 2.2% increase forecast by HPES, which stands for Home Price Expectation Survey. That is the average answer from a survey, by Pulseomics, of over 100 leading economists and real estate experts.

This forecast is a positive development when you consider the past couple of years have been defined by either rapidly rising home price or rapidly rising mortgage rates, which created affordability challenge.

The Real Picture of Affordability

Speaking of affordability. Although it has widely been reported that housing is unaffordable compared with the past few years, it's important to provide some context. I’m not saying that affordability hasn’t been challenged, because it has, but comparisons with the period of historically low mortgage rates don't paint a complete picture.

Historically, the mortgage payment-to-income ratio has been around 25%, and we are currently slightly above this mark. This shows an increase in cost but is not an unprecedented scenario. We have been spoiled by below average affordability for much of the past 20 years as shown on the following graph:

I realize knowing affordability is close to the historical average doesn't help anyone considering buying a home today that has seen the monthly cost soar while the amount of home they can buy has fallen.

While home prices get most of the attention, mortgage rates actually play a bigger role (see this video to learn more).

The Influence of Mortgage Rates

Mortgage rates significantly impact affordability. A 1% drop in mortgage rates is equivalent to a 10% decrease in home prices. The opposite is also true. As mortgage rates over the past 18 months buyers suddenly found the amount of home they could afford falling. A buyer who qualified for $700,000 at 3% could only qualify for $350,000 at 8%. As such, many buyers were forced to drop out of the market and wait for things to settle down.

As demand evaporated, it was widely believed that home prices would fall, but they didn’t.

Ultimately, home prices are based on the relationship between supply and demand. Even though demand fell, supply also fell. If it wasn’t for the amount of new construction supply we have in our local market prices wouldn’t have stayed as flat as they did in 2023.

Falling mortgage rates are likely to bring more buyers back into the market, particularly if the supply of homes increases. This interplay between mortgage rates and housing supply is a critical factor in understanding market dynamics.

A Closer Look at Frisco, Texas

Although new construction has brought much needed supply to our local market, the total number of homes for sale still remains well below pre-pandemic levels. This graph shows how inventory has changed in Frisco since 2018:

Although the supply of homes for sale is higher than 2021 and early 2022, when multiple offers and bidding wars dominated the market, we still have less than half the number of homes for sale as we had in 2018 and 2019.

If mortgage rates continue to fall, which they are expected to, more buyers will enter the market in the new year. If supply doesn’t keep pace you can guess what home prices are likely to do starting in the busy spring season.

For a detailed look at what to expect Frisco home prices to do in 2024 I invite you to watch this video.

I just recently saw a report from the National Association of Realtors (NAR) forecasting to Dallas Real Estate market to be one of the 10 most likely to outperform that national forecast next year.

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Moving Forward

Although something unexpected could happen, we are moving into an election year.

The market might see some shifts, but currently, there are no strong indicators of a major correction in the housing market, either locally or nationally. Interest in new constructions continues to be strong, a positive sign for the market's health.

For anyone considering buying or selling a home in the Frisco area in the near future, staying informed about these trends is essential. Schedule a Call today and let’s put a plan together to help you achieve your real estate goals in the new year.