Welcome to your Frisco, TX real estate market update for August 2023. This month's update covers a range of topics while addressing the current state of confusion in the market and providing clarity on mortgage rates, home prices, and inventory levels.

If you're considering buying or selling a home and find yourself unsure about the right move, this update is tailored to help you make informed decisions.

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

if you're confused by what's going on in the Frisco, TX real estate market, you're not alone. Even experts have been grappling with the unexpected twists and turns in the housing market. The predictions and projections made last year haven't played out as expected, and the housing landscape has taken an intriguing turn.

Let's journey back to December 2022 when headlines were dominated by dire forecasts.

A decline of up to 20% in home prices was projected, and the talk of a market crash was pervasive. Yet, the anticipated bubble burst never happened. While these predictions did cast doubts on consumer confidence in home prices, as shown on the following graph;

As you can by the declining line on the far right-hand side of the graph, consumer confidence is returning given the fact home prices have remained resilient.

Why is that? Why haven’t we seen a housing downturn in 2023?

The best way to explain that is to look at the assumptions the original projections were based on.

As mortgage rates rose the belief was that demand would fall while supply would continue to increase. The increase in listings would disrupt the balance between supply and demand causing prices to fall.

New listings generally peak in May, but last year they continued to increase into June and the dotted line on the following graph shows how they were expected to increase.

It never happened though, rather than continuing to increase, listings actually began to fall, just later in the year than normal and at a faster pace than we usually see.

Here’s what Bill McBride, the founder of Calculated Risk, who correctly predicted the crash in 2008, had to say about what happened;

The lack of supply continued into 2023;

The graphs above show listing and inventory from a national perspective, while we don’t follow the exact same pattern here in Frisco, our listing inventory remains well below historical averages as well;

So why is inventory so low?

The mortgage rates that were expected to drive inventory up actually drove resale inventory down as homeowners who didn’t have to sell simply took their homes off the market. After all, if you were planning on moving by choice, why trade your 3% fixed-rate mortgage for a new one at 7%? It doesn’t make good financial sense.

Where Will Supply Come From?

If we’re not going to get supply from resale homes that only leaves foreclosures and new construction.

The topic of foreclosures has been at the forefront for the past several years. There has been talk of an impending wave of foreclosures that would reshape the market. Yet, the reality has been quite different.

While foreclosure filings have seen an increase compared to 2021, when a moratorium was in place, they are still well below historical norms.

As for future foreclosures, the mortgage delinquency rate, those loans 90 days late on payments not yet in foreclosure, also continues to fall;

The notion that a wave of foreclosures is in our future is just not true.

What Does This Mean for Home Prices?

The narrative has evolved significantly. Experts who once warned of an impending crash are now anticipating positive price growth.

Here is a look at how the home price forecasts for 2023, originally made in December 2022, from The Mortgage Bankers Association, Fannie Mae, Morgan Stanley, and the AEI Housing Center have been updated;

CoreLogic and Zillow, shown at the bottom of the graph, provide a 12-month forecast rather than a calendar year forecast. They are projected 4.5% and 6.5% appreciation respectively.

Frisco Home Prices

Here is a look at how the median sales price of resale homes has changed in Frisco over the past 3 years;

Regardless of mortgage rates, I think we can all agree that the increase in median price we saw during 2021 and the first half of 2022 was simply not sustainable.

At some point there had to be a correction. The rapid rise in mortgage rates in 2022 is what brought our real estate frenzy to an end and provided the cooling many had been hoping for. Home prices in Frisco peaked in April 2022 and declined rather rapidly through October.

The challenge is that talk of a crash, or a bubble bursting, didn’t get loud until the end of 2022 in the national media, which was after it had already happened here in Frisco.

Local home prices have stabilized in the first half of 2023 and in July they actually stood 5.1% higher than they were in July 2022. This isn’t because home prices locally are accelerating, although they are trending up, it’s because they were falling so rapidly at this time last year.

Even though new construction is generally priced higher than resale homes, new construction is our saving grace locally as it provides the supply we need to prevent home prices from increasing faster than they currently are.

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Mortgage Rates

Mortgage rates, more so than home prices, are impacting affordability in our local market, especially among first-time home buyers. Even though mortgage rates have remained stubbornly high, the experts are predicting they have most likely peaked and should start coming down.

Contrary to popular belief, mortgage rates are not directly tied to the actions of the Fed, but are tied to the 10-year Treasury Bond yield and inflation is the enemy of long-term mortgage rates. Mortgage rates lag movements in inflation, however.

Here is how mortgage rates have trended relative to inflation over the years;

You can see on the far right-hand side of this graph that inflation has been falling, but mortgage rates are yet to follow, but they will.

Here are the latest projections on how mortgage rates will change in the coming year;

As mortgage rates fall, especially once they get back into the 5s, we will see an uptick in demand and we should start to see more listings as well as more homeowners will be willing to make a move.

How much supply increases relative to demand will determine how much price appreciation we will see.

Bottom Line

To sum it up, the data paints a contrasting picture from the initial predictions. The market remains tight, foreclosure-driven crash scenarios are debunked, and experts anticipate sustained price growth. If you're navigating the real estate landscape, understanding these market shifts is imperative for making well-informed decisions.

If you have questions or wish to delve deeper, feel free to schedule a call. My goal is to empower you with the information needed to navigate the real estate journey confidently and make the decision that’s best for you and your family.