Despite all the gloomy forecasts to start the year, the Frisco TX real estate market has proven to be very resilient and continues to surprise, or disappoint, depending upon what you were hoping for.

Now that the first half of the year is behind us, in this real estate market update for July 2023 I will take a look at what we might expect to see in the second half of the year in terms of mortgage rates, housing supply, and home prices.

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

I realize these market updates can be a bit tedious as going over charts and data is not exactly the most interesting thing in the world, but there seems to be a lot of confusion about what’s going on the in real estate market right now and conflicting headlines do little to provide clarity.

In this real estate market update I’m not going to get stuck in the weeds, but provide more of a high-level overview to explain what we’re currently seeing and if you’d like more specific information, or have a situation you’d like to discuss in more detail, I invite you to schedule a call with me and I’d be happy to discuss further.

Mortgage Rates

When mortgage rates rose from 3% to over 7% last year it was widely believed that home buyer demand would evaporate, housing supply would increase, and home prices would come tumbling down. While that did happen to a certain extent (see this recent blog post for additional information), it wasn’t the crash or correction many were expecting or forecasting.

After the initial shock of higher mortgage rates, buyers seem to have adjusted to the new normal of between 6% and 7%, where rates have mostly stayed for the past 10 months;

As mortgage rates have remained fairly stable, home sales have as well, despite headlines about year-over-year sales declines.

The headlines about home sale declines aren’t wrong, but the truth is you can’t sell what isn’t available for sale.

Housing Supply

While there is no doubt mortgage rates do impact home sales, housing supply does as well. Here’s what Lawrence Yun - Cheif Economist at NAR had to say;

As mentioned above, when mortgage rates rose, buyer demand was expected to fall, which it did, while housing supply was expected to increase, which it didn’t.

Tom Barkin, President, Federal Reserve Bank of Richmond acknowledged this;

Let’s be honest, if you’re a homeowner with a low mortgage rate, and the majority of all outstanding mortgages are locked at 4% or lower, why would you sell your home to buy a new one at a 7% mortgage rate?

You wouldn’t, unless you had to.

Here’s a graph showing the total number of new listings this year compared to previous years nationally;

Just look at how far the dark blue line, which represents 2023, is below previous years.

Here in Frisco, new listings are down 30.3% year over year and total active listings are down 25.7% year over year.

Here’s is how active listing inventory in Frisco has changed from July 2018 until today;

Housing supply can only come from one of two places, resale homes or new construction.

Since there is currently little incentive for existing homeowners to sell, unless they have to, that leaves new construction, which we have plenty of here compared to many places.

Even so, new home builders can’t build fast enough to satisfy demand.

New home starts jumped a much higher than expected 22% in May, but here is how the pace of new construction over the last few years compares to years prior;

Between 1960 and 1999 we averaged 1.5 million new home starts per year nationally.

Between 2007 and 2007 that number increased to 1.7 million new home starts.

Then the crash.

The new home builders got burned, many didn’t survive, and new housing starts plummeted to an average of 766k per year from 2008 to 2014.

We didn’t get back to the historical average of 1.5 million new home starts until the beginning of 2020, then COVID hit and we fell back below a million once again.

Based on May’s numbers, we are currently on pace for 1.6 million new housing starts, but we’ve been very underbuilt for a lot of years at a time when new household creation has been growing and millennials are reaching prime home-buying age.

So what does that mean for the future of Home Prices?

Home Prices

Home prices are directly related to the relationship between supply and demand.

If supply is high and demand is low, prices will fall.

If supply is low and demand is high, prices will rise.

In real estate, the relationship between supply and demand is generally measured in terms of months of inventory. For instance, if there are 3 months worth of inventory, that means it would take 3 months for all of the homes currently on the market to sell at the current pace of sales.

A real estate market is generally considered balanced, or neutral when there are between 5 and 6 months’ worth of inventory. Currently, in Frisco, there is 2 months’ worth of inventory.

As of June, the median sales price in Frisco was 4.2 lower than it was in June 2022, but I expect we will turn positive year-over-year next months as prices were declining this time last year and have been trending up for the past few months.

This graph shows how the price of new listings in Frisco have been trending;

As you can see on the far right-hand side of the graph, list prices have been trending up for much of the year.

I realize anyone can list a home for any price and that doesn’t mean that is what the home will sell for, but when you also consider that since April, homes have been selling for 100% of the list price, as shown on this graph, it provides a better indication of where home prices are heading;

Homes that go under contract in July, will likely close in August or September, which is why these two graphs together provide insight into where home prices will likely be in the months ahead.

If you’ve been considering buying or selling a home and would like to be able to track this information yourself, I invite you to subscribe to my Weekly Market Report. The data is available for any city/zip code of interest to you and will be delivered to your inbox every week.

Bottom Line

While there is uncertainty about the economy, which could impact demand, I think the data clearly shows the supply side of the equation isn’t going to change any time soon, which means the chances of home prices declines in the foreseeable future are slim.

If mortgage rates fall later this year, which is what the experts are forecasting, that will likely bring more home buyers back into the market which will put upward pressure on home prices.

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