As we reach the mid-point of 2023, the housing market here in Frisco TX, and nationally, continues to surprise.

Resilient is the word I continue to hear when describing the housing market.

Despite calls last fall of a housing market crash, it’s now looking like the worst may actually be behind us.

In this housing market update for June 2023, I share the latest news and information, paying special attention to mortgage rates and home prices. Watch the following video, or continue reading below, especially if you are considering buying or selling a home this year.

Many of the predictions about a housing market crash in 2023 were made after mortgage rates crossed 7% last year. The assumption was people would simply stop buying homes.

A lack of demand, coupled with increasing supply, would cause home prices to come crashing down.

While there is definitely a noticeable decline in buyer activity when mortgage rates cross 7%, there is still enough demand, relative to supply, to limit downward pressure on home prices.

The perception many people have is that nobody is buying homes. While it’s true that sales and activity are down compared to the last two years, showing activity remains above what we typically saw prior to 2020 as shown on the following graph;

The question now is whether this is the new normal for mortgage rates or can we expect the see them come down in the months ahead?

Mortgage Rates

While many believe mortgage rates are directly impacted every time the Federal Reserve raises interest rates, that’s not actually the case.

Mortgage rates are actually tied to the yield of the 10-year Treasury Bill. Historically, the spread between the 10-year Treasury yield and mortgage rates has been 1.72% as demonstrated on the following graph;

The only time the spread increases above the historical average is during periods of high inflation and economic uncertainty. Both of which have been in play since the second half of last year.

Here is what the spread between the 10-year Treasury and mortgage rates has looked like this year;

As the inflation numbers continue to improve, and now that an agreement on the debt ceiling has been reached in Washington, mortgage rates are widely expected to fall in the second half of 2023, but it’s not clear when, or if, we will get back to the historical average spread.

While falling mortgage rates would be welcome news for would-be homebuyers, falling rates would likely put upward pressure on home prices as buyers who put their plans on hold due to elevated mortgage rates are likely to return to the market, increasing competition on what is already a low supply of homes for sale.

Home Prices

Questions about where I think home prices are heading are what I am asked about more than anything, especially over the past few weeks.

Typically, home prices are gauged by looking at changes in the median sales price year-over-year. While this will provide a general idea of home price trends, it’s not necessarily the best way to gauge current market conditions.

For one, the median sales price always fluctuates based on the composition of homes that sold in a given month, which is dynamic. One month could have a higher percentage of expensive homes and the next month the data could contain a higher percentage of lower-priced homes.

Second, sales data is a lagging indicator that doesn’t necessarily tell you where the market is heading.

Check out last week’s blog post where I look at both the lagging and leading pricing indicators for the Frisco TX housing market.

Month-over-month price change comparisons give a more accurate comparison of current pricing trends.

Just because home prices are down year-over-year, doesn’t mean you’re not in an appreciating market currently. It can be an indication the market has bottomed out and is already on its way back up.

The vast majority of price declines in the housing market took place in the second half of 2022. Prices in many markets have already stabilized and are starting to increase again.

Here’s a look at the month-over-month change in home values from Case-Shiller, FHFA, and CoreLogic going back to January 2022;

Although they calculate prices differently, the home price trends report from Zillow is showing the same thing;

Rather than declining home prices in 2023, many experts are now revising their home price forecasts upwards. Here is what CoreLogic believes national home prices will do in 2023;

Here in Frisco, even though home prices are down 6.6% year-over-year, they have generally been trending upward since last November;

One way to gauge where home prices are heading is to take a look at list price trends as well as the percentage of original list price homes are selling for.

Since January, buyers here in Frisco are finding they have less negotiating power, there are fewer incentives, and are having to pay closer to list price. In May 2023, homes were selling for an average of 99.6% of list price.

The median list price, which had been trending up, has started to flatten, possibly as a result of the increased mortgage rates. Summer is typically when prices peak for the year, so this is something I will be keeping an eye on.

Bottom Line

Although uncertainty remains regarding the overall economy, there is nothing to suggest we will see any sort of crash in the residential housing market in the foreseeable future.

The best way to stay up to date on your local housing market is with my Weekly Market Report. Here is a link to my latest Frisco Market Report. Use the search bar at the top of the report to see the latest date for any city or zip code of interest to you.

If you are considering buying or selling a home, have questions about the current market, or a specific situation you would like to discuss further, please feel free to schedule a call with me.

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