A Housing Market Unlike Any OtherAug 01, 2021 ● By Joshua Baethge
It is no secret that the local real estate market is on fire. Homes are selling for prices that would have been unheard of just a few years ago. The continuing influx of people from states including California, New York and other far-flung locales has created competition for homes on an entirely new scale.
“It’s not like any other market I’ve been through,” Ebby Halliday Realtor® Lynn Slaney Silguero said. She has sold real estate in the Frisco area for 20 years and characterizes the current situation as a “reset in value” that she does not foresee changing anytime soon.
Statistics from the Texas A&M Real Estate Research Center seem to back that up. The average price of a home in Frisco a decade ago was $303,828. By July 2019, that number had increased to $482,838. In May, the most recent month for which statistics were available, the average home price had skyrocketed to $652,244.
All signs point to numbers continuing to climb. “At the end of the day, if you’ve lived in Frisco since 2013, your home has pretty much doubled in value,” real estate broker and Frisco resident Matt Calloway said.
The higher prices are also changing the nature of who is moving to Frisco. There was a time when young couples came to the city to buy their first home and begin a family. Now, the homebuyers Mr. Calloway said he sees typically are middle-aged with families and established careers who can afford higher home prices. However, many people are finding it a challenge to purchase the right home for their situation.
Mr. Calloway said that anyone who is currently attempting to buy a home in the Frisco area should be prepared to come in with additional funds to offset any appraisal issues. Also, they should be ready to make offers in the range of $20,000 to $40,000 above the price at which the home is listed and expect to face stiff competition from other buyers who likely have already been outbid on multiple houses and are getting desperate in their search for a new home.
Under normal conditions, Mr. Calloway said his role representing buyers would usually entail finding them the best deal possible. These days, he said, there are few deals to be had, and outbidding other buyers is often the only way to secure a home purchase.
"Until our inventory (of homes for sale locally) comes up more, it’s still going to be this challenging, multiple-offer dog fight,” he said. “I don’t think our market is going to go down any. Once we get more inventory to pick from, I think people will not have to be so competitive and bid so much over and do a lot of things that really aren’t traditionally done.”
New inventory is on the way, but it remains to be seen how much that will help the situation for Frisco buyers. Through the first half of 2021, the City of Frisco issued around 1,540 residential building permits – approximately 256 per month.
According to builder Barry Hensley of Frisco-based NorthStar Luxury Homes, the rate of new home construction locally in May of this year was about the same as in 2020. However, demand from buyers has increased significantly, causing new-home prices to rise by more than 1 percent per month.
“We are in the midst of a housing shortage,” Mr. Hensley said. “Some builders are literally putting potential buyers into a ‘lottery’ basket and drawing out ‘winning’ names on a weekly basis.”
Other builders have even stopped selling to individual buyers. Recently, one of the country’s largest homebuilders, D.R. Horton, completed a 124-home subdivision in the Houston suburb of Conroe. Instead of selling them to individual buyers, the company rented out the homes, then sold the entire neighborhood to an investment company.
There are also reports of builders canceling contracts for new homes that are nearly completed. In some scenarios, they have refunded the original buyer’s deposit, raised the price of the home and then put it back on the market. In Fort Worth, one builder reportedly canceled a contract only to put the same home back on the market for $110,000 more than what it was priced at in the original contract. The practice may seem shady, but the fine print of many contracts makes it perfectly legal.
Then there is the issue of material shortages and rising costs. For example, the lumber index in May 2020 was around $360 per thousand board feet. On May 7 of this year, it reached an all-time high of $1,670 per thousand board feet.
According to Mr. Hensley, material shortages are also impacting construction schedules. Three years ago, a typical 2,500 square-foot home could be completed in about six to seven months. Today, the process can take close to a year, with at least one large national builder warning buyers that construction timelines could extend even farther.
"Builders are being told to order (home) appliances and brick more than six months before they are needed. There are rumors that an insulation shortage and a sheetrock shortage are coming. All of this causes hiccups in the production schedule, which can add months to the completion of a new home,” Mr. Hensley said. “Buyers of new homes may wonder why some new homes under construction sit idle for weeks. It’s because the materials are not available.”
If there is a glimmer of good news for new-home buyers, it may be that lumber futures decreased by more than 40 percent in June, giving hope that the market may be nearing some semblance of normalcy.
Mr. Hensley added that most builders are sympathetic to buyers’ situations – there’s just not a lot they can do about it. As for negotiations on new-home purchase prices, there is very little these days that can be done.
Realtor® Pam Cotter, of Jones-Papadopoulos & Co. in Frisco, said she recently had a family from Wisconsin looking to buy a home here. They were floored when they learned that their starting point would likely be to make an offer $20,000 to $50,000 above list price.
Ms. Cotter said prospective buyers who aren't paying with cash need to make sure they are preapproved for a mortgage loan if they want to be considered a serious buyer. They should also be prepared to spend additional funds and understand that if they are looking for new construction, the process is likely going to take a while.
“I don’t think things will settle down,” she said. “It’s just the way it is right now, so be prepared, be ready to make an offer and go over list price.”
As for sellers, Ms. Cotter said it is a good time to sell a home, but only if they have somewhere else to move. She has seen some sellers opt for short-term apartment leases or extended-stay hotels while plotting their next move once their home sells.
Mr. Calloway expressed a similar sentiment, noting that homeowners can obviously get good money for their homes given the current market. However, if they want to stay in Frisco, they will likely experience the same battle as everyone else who is looking for a home. And all indications are that the prices will remain high for the foreseeable future.
It is likely that many Frisco homeowners have received a call, a letter or a knock on the door asking if they are interested in selling their abode. Most local real estate agents agree that this is probably not the best way to get the most money for a home.
“There is so much fraud,” Ms. Slaney Silguero said, explaining that, per the National Association of Realtors’® Texas Home Sellers Survey, 91 percent of sellers used a real estate agent or broker for their transaction. “Of the 91 percent, they chose their agent (based) on reputation, honesty (and) knowledge of neighborhood.”
Mr. Calloway said someone he knows recently sold their home through an internet-based firm. While the person came away with a fair price, he believes that significant money was left on the table. He said companies such as Zillow are actually buying homes and reselling them. “Every seller’s situation is different. … The worst situation to be in right now are the people that have to move and get into a house.”
As the owner of an Airbnb home that he rents to others, Mr. Calloway has seen firsthand just how many people are in that situation. It seems as though nearly all of his renters are people who are moving due to a work relocation and are struggling to find a home for their family. He estimates that up to 80 percent of the homebuyers he sees in the area are coming from California, with most others hailing from Chicago or the northeastern U.S.
Despite all of this, Frisco’s housing market is still favorable compared to many other places in the country. Mr. Calloway has had people tell him that their million-dollar home in the western U.S. is comparable to a $300,000 home here, or that their former neighborhood had poorly rated schools while Frisco ISD is ranked among the best in the state.
“There are so many dynamics at play across the real estate spectrum,” he said. “In our market, we’re so blessed because so many people do want to live here. We’ve created this environment where we have an ultimate lifestyle that’s so refreshing to so many people across the country.”