The real estate market continues to ebb and flow on the back of mortgage rates while many potential home buyers continue waiting for the home price drops that dominated the headlines last fall.

In my Frisco TX real estate market update for April 2023, I’ll take a look at the impact mortgage rates have on buyer demand and share when you should expect to see home prices fall, unless they already have………

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

Mortgage Rates

As mortgage rates rose rapidly in 2022, there was widespread expectation that rising mortgage rates would crush buyer demand.

While buyer demand did drop significantly last summer, once the shock and adjustment to higher rates had been absorbed, demand actually stayed stronger than expected, with 6.5% emerging as a threshold as shown on the following graph;

Once mortgage rates rise above 6.5% we see buyer demand soften, then strengthen as mortgage rates start to fall. This ebb and flow has been happening since the fall;

After rising again in March, the bank failures and continued uncertainty about the future of the economy caused rates to come back to again in early April;

The Impact on Home Prices

Last fall, as mortgage rates climbed to levels not seen in decades, the headlines were dominated by forecasts of steep home price declines in 2023;

Two challenges of the housing market are that all real estate is ultimately local and the majority of the numbers being reported are outdated by the time they’re reported.

As such, what potential home buyers and sellers are hearing, and thus their perceptions, might not accurately reflect local market conditions.

Why does this matter?

The most recent data being reported on the national real estate market is from January. According to January’s numbers, every region of the country, except for the West Coast, was still showing year-over-year price appreciation.

When you combine this data with the headlines from last fall, it’s no wonder that many potential homebuyers here in the Frisco area are waiting for home prices to fall before buying, but what if I told you they already had…..

Frisco Area Home Prices

Nationally, home prices peaked in June 2002, even a little later in some markets in the north and east, but home prices here in Frisco peaked in April 2022. By August, we’d already experienced the majority of our price declines, and by October prices were increasing again;

Last year, home prices rose rapidly between January and April as homes were routinely selling for substantially over their list price due to bidding wars, before declining over the summer and early fall.

In Frisco, home prices fell 17% between April 2022 and August 2022.

As of March 2023, here is how far below their peak home prices are in Frisco and the surrounding areas;

Notice that as of March, prices in Frisco are now 8% below their peak even though they fell a total of 17%, indicating that pricing has already started to recover.

Allen, which saw the biggest overall price decline of all the local cities I looked at, saw that decline between June 2022 and October 2022. Since October, pricing in Allen has been flat.

The data is telling us that here in Frisco and the immediate surrounding areas, the bulk of the price declines are now behind us.

Granted, it is possible that could change, but there is nothing in the data currently that additional price declines are in our future. In fact, updated forecasts from Zillow, Moody’s, Fannie Mae, and Core Logic, have recently been updated to show modest appreciation this year or reduced the percentage of potential declines.

Here is how local home prices changed in the 1st quarter of 2023;

Supply Remains Constrained

The reason home prices are remaining sticky, and starting to increase, is that there are simply not enough homes for sale to satisfy demand.

New home builders are continuing to bring and several new major developments have started, but resale sellers have been slow to put their homes on the market. Many have decided it is simply not worth trading in their 3% mortgage for a new mortgage at 6%.

Although up year-over-year, the supply of homes for sale continues to be well below pre-pandemic levels. Here is a look at current inventory levels here in Frisco;

As we move into prime selling season, I keep expecting the number of homes for sale to increase, but it just hasn’t happened as of yet.

Bottom Line

The challenge with trying to time the real estate market is that we never know if it has peaked, or hit bottom, until after it has.

As you can see, our local market conditions are not the same as what is being reported nationally and there are even differences from city to city within our local market. If you are considering buying or selling a home and have questions about the current market, schedule a call, as I’d be more than happy to discuss your situation with you in more detail.