Home prices here in Frisco, Texas have been a hot topic of discussion for both buyers and sellers recently.

Many people have been asking why home prices have not fallen more than they have over the past few months.

In this blog post, I will take a closer look at what has been happening with home prices in Frisco, share why they haven’t fallen more than many expected, and what it means for us in the months ahead.

Continue reading below, or watch the following video, to learn more;

Frisco Home Prices

If you’ve seen recent headlines, or news reports, about the housing market, you might think the market is in a free fall.

With all the talk of home sales being down, buyer activity being down, and mortgage rates being up, it would be natural to think that home prices must be going down.

While that is true in some markets, all markets are different.

What we are experiencing here in Frisco, Texas is unique and different from other real estate markets across the country.

Home prices are determined by available supply compared to demand.

As mortgage rates go up, and homes become less affordable, demand goes down. If falling demand is coupled with rising supply, home prices fall, but when demand goes up against limited supply the opposite is true, as we saw over the last couple of years.

The relationship between supply and home prices is easy to see using the trend analysis report from the local Multiple Listing Service (MLS).

Here is the median sales price data for Frisco over the past 5 years;

Between January 2018 to January 2020, home prices were trending up, but the year-over-year price increases that negligible.

However, in 2020, right around the time when COVID-19 hit things started to change as home prices increased rapidly.

The price increases weren’t caused by a decrease in supply, but a massive increase in demand, partly fueled by artificially low mortgage rates.

This is when we saw the vast majority of price gains over the last couple of years, especially in the end of 2021 and early 2022 when the frenzy was at its absolute highest. Home prices in Frisco peaked in April 2022, and from there, prices started to fall as mortgage rates went up and buyers backed off. Sellers that needed to sell their homes had no choice but to reduce the price.

Between January 2018 and January 2020, home prices were trending upward, but the year-over-year rate of appreciation was negligible.

That changed in 2020 right after the COVID-19 outbreak.

Home prices increased dramatically not because of falling supply, but rapidly rising demand, partially caused by artificially low mortgage rate

The majority of the price gains occurred between the fall of 2021 and the spring of 2022 when the frenzy was at its absolute highest.

Home prices in Frisco peaked in April 2022, before starting to fall as mortgage rates rose and buyers backed off.

Those sellers that needed to sell were forced to cut prices and by August 2022 the median sales price had fallen 17%.

Home prices remained fairly stable through October, but as mortgage rates peaked and started to retreat we saw those home buyers who had put their search on hold for a few months start returning to the market.

You might also recall that new home builders started introducing fairly aggressive incentives, including discounted mortgage rates, to bring buyers back to the market. The plan worked which is why we saw the median sales price increase in both November and December.

Frisco Housing Supply

Here is how the supply of homes for sale changed over the same period of time;

In the first half of 2022, we saw the number of homes for sale increase fairly rapidly. This increase in supply is what led many to believe home prices were going to crash in the second half of 2022.

The expectation was that supply would continue to increase as demand was decreasing due to rising mortgage rates, but that didn’t happen.

As you can see on the graph above, supply started falling rapidly after July. Turns out, there weren’t as many homeowners as originally expected willing to trade in their 3% mortgage to buy a new home with a 6.5% rate. As such, sellers simply took their homes off the market.

But Inventory is Up

One of the headlines you may have seen recently is how many more homes there are for sale this year compared to last.

That is completely true. In January, the number of homes for sale in Frisco was up 172% year-over-year, but when you compare this to previous years you can see how low inventory still is.

In June 2018, the high point for the year, there were 1,307 homes for sale in Frisco. In June 2019 there were 1,261. In June 2022 there were just 561 homes for sale.

The 286 homes for sale in January 2023 is the highest we have seen in the past couple of years but is still well below the 784 homes that were for sale in January 2018.

Traditionally, 6 months’ worth of inventory is what is needed for a housing market to be considered balanced and favor neither buyers nor sellers.

Months of inventory is a good way to measure demand relative to supply as it reflects the amount of time it would take for all homes currently listed for sale at the current pace of sales.

The number of homes currently for sale in Frisco equates to 1.3 months’ worth of supply.

Bottom Line

Even though sales prices increased in November and December, and inventory remains low, I don’t expect we will see much in the way of price increases this year.

If you’ve been hoping home prices will return to 2019 levels, I don’t expect that to happen either.

With inflation remaining stubbornly high, and mortgage rates holding in the upper 6’s I expect home prices to remain fairly flat this year, but wouldn’t be surprised to see a small amount of appreciation.

Much will depend on how strong the economy remains, but even the experts who were predicting large price decreases are starting to revise those forecasts.

If you have questions about the local market, or a specific situation you would like to discuss in more detail, please feel free to Schedule a Call.

Also, if you’d like to keep track of changes in the median home price as well as the number of homes for sale here in Frisco, the best way to do that is through my Weekly Market Report.

Interested in an area other than Frisco?

Use the search feature at the top of the Frisco Market Report to see the latest data for any city or zip code of interest to you.

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