In your Frisco TX real estate market update for February 2023 I’m going to focus on three main items;

Mortgage rates
Inventory (supply)
Misleading headlines

The rapid rise, then subsequent decline, in mortgage rates has been the main influencer of home buyer demand, while available supply, relative to buyer demand, is the driver of home prices, and those headlines, while they might be factually correct, aren’t telling the whole story.

Is 2023 a good time to buy a house? Is 2023 a good time to sell a house? Is the Frisco real estate market going to crash?

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

Over the past couple of weeks, I've met with several different buyers and sellers, and the common thread between them was a sense of confusion.

The perception of what’s going on in the real estate market is not necessarily matching the reality of what we're seeing here in Frisco and the surrounding areas, creating confusion.

I can’t tell you how many times I’ve heard “but I thought…….. based on what I heard on the news.” We’ll get into those misleading headlines later, but let’s start with mortgage rates.

Mortgage Rates

Mortgage rates are the primary influencer of buyer demand as they directly impact affordability. Since rising rapidly in the spring and summer of 2022, mortgage rates have since been easing back down as shown on the following graph;

The expectation, as mortgage rates rose, was that home buyer demand would evaporate, which it did to a certain extent, but as rates have been trending down, buyer demand has been more resilient than expected.

Mortgage Daily News recently released a chart showing the impact mortgage rates have on buyer demand;

I recently visited some new construction model homes and was surprised by the number of people out looking.

Not only are people looking, but they are buying. There are even reports of multiple offers happening again (the difference being that bidding wars to push prices thousands above the list price are not happening.)

In a sign of stronger buyer demand, the Mortgage Bankers Association reported that new mortgage applications rose 7.4% last week and said;

Purchase activity that was put on hold last year……is gradually coming back as rates ease and housing demand remains strong.”

This is probably not what you would expect to hear considering all the talk of a housing bubble, price declines, and imminent crash that has been prevalent since last summer.

Why is that?

Inventory (supply)

In order for home prices to decline, or the market to crash, you need to have supply outpace demand, which we saw last summer.

Home prices in Frisco peaked in April and May in Prosper as rising mortgage rates caused buyer activity to grind to a halt. Sellers were forced to reduce prices and we saw the median home price in Frisco fall 17% between April and August and 14% in Prosper.

Talk of a housing market crash grew louder due to the assumption that supply would keep increasing while demand was falling.

The solid red line on the graph below shows the new monthly listings between January and June, while the dotted line represents the expected new listings in the second half of the year;

Those assumptions turned out to be wrong.

Rather than continuing to increase, here’s what new listings actually did in the second half of the year;

The number of homes to come on the market actually decreased faster than in previous years. New listings in December 2022 were 21% fewer than in December 2021.

Here in Frisco, inventory followed the same rise and fall as we saw nationally. Here are the 7 and 90-day inventory trend lines for Frisco going back to January 2020;

So why has inventory fallen so much when the leading expert forecasts were all predicting inventory to keep rising?

It comes back to mortgage rates.

As mortgage rates rose, multiple offers and bidding wars stopped, and prices started declining. Homeowners that didn’t need to sell decided they weren’t going to. Why trade in a 3% mortgage for a 6.5% mortgage if you didn’t have to?

Rather than reduce the list price, many sellers simply allowed the listing to expire or took the home off the market, while those that had been thinking of listing their home decided not to.

By the time mortgage rates started to decline, inventory had fallen enough to be in balance with the current demand.

The result? Home prices stopped declining and have remained fairly flat since September.

The median home price in Frisco in January 2023 was $705,000, which is 8% lower than the peak of $760,000, but still 13% higher than in January 2022.

Prosper, given the smaller market size, has seen more fluctuations. The median home price in Prosper in January 2023 was $731,000. That is 23% lower than the peak and 11.7% lower than the median price in January 2022, but still 42% higher than the median sales price in January 2021.

If you’d like to keep track of the inventory, days on market, median home price, and more, for the city or zip code of interest to you, the best way to do that is with my weekly market report. Here is my latest Frisco Market Report. From the top of that report, you can search for the city or zip code you would like to follow.

While there seems to be a general feeling that the other shoe is about to drop, so to speak, and the housing market is on shaky ground, keep in mind the expert forecasts and opinions (I shared those in this blog post) were calling for home price declines of anywhere from 5% to 20% peak to trough. As you can see from the numbers above, we’ve already experienced home price declines within that range locally.

Does that mean we couldn’t see further price declines here in Frisco and Prosper? No, it doesn’t, but many of the same experts I referenced above are now revising their forecasts to suggest there will be less downside than previously expected, but you might not know that based on recent headlines.

Misleading Headlines

If the reality of our current housing market isn’t matching your perception, you’re not alone. A recent survey by NerdWallet found the majority of those surveyed believe the housing market is heading for a crash;

While I can’t predict the future and don’t pretend to be able to, I do know that many of the headlines out there, while factually correct, aren’t telling the whole story.

One of the reasons talk of a housing market crash increased last summer was the expectation that housing supply was going to keep increasing in the face of declining demand. This would lead to an over-supply and force home prices down.

Supply can only come from one of two places, existing homes or newly built homes.

If the builders aren’t building as much (not all areas have as much new construction going on as we do), and homeowners who don’t need to sell are reluctant to list their home for sale, where is that inventory going to come from?

How about the homeowners who don’t need to sell, but have to?

If you recall, when the economy shut down as a result of the pandemic, it was speculated the result would be a tsunami of foreclosures worse than what we saw during the housing market crash.

Here we are nearly three years later and we haven’t seen them.

Recent headlines might make you believe their arrival is imminent, however;

Pretty daunting headlines, right?

Factually, they are correct. Foreclosure filings in 2022 were 115% higher than they were in 2021, but does that mean a flood of new supply is about to hit the market? Hardly.

It’s important to point out that foreclosures are a natural part of the real estate market. They happen every year, in good markets, and bad.

Here’s a look at the annual foreclosure numbers going back to 2005;

The 324k foreclosures in 2022 are higher than we saw in 2020 or 2021 (remember a moratorium was in place), but still lower than any other year going back to 2005 and not even close to what we saw during the last housing market crash.

Currently, there are 0 foreclosure listings in Frisco, 3 in Denton County, and 4 in Collin County. Certainly not enough to make any difference in our local supply of homes for sale.

What about homes in the pipeline that aren’t in foreclosure yet?

They don’t exist!

The banks and government learned their lesson last time. The CARES Act, which was introduced during the pandemic to help homeowners avoid foreclosure, worked and worked really well.

ATTOM Data, a leading real estate data analyst, recently said this with regard to potential foreclosures;

Bottom Line

I’m not trying to suggest it will be all smooth sailing ahead and the housing market is back. Inflation remains a concern and there are some definite economic uncertainties in our future, but the current market is stronger than the headlines lead you to believe.

Ultimately, only you can make the decision that’s best for you and your family. My goal is simply to make sure you have the most up-to-date and accurate data on our local housing market in order to make that decision.

If you have questions about the local market, or a specific situation you would like to discuss further, please consider scheduling a call with me. I’d be more than happy to talk with you.

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