A Look Back: Recap of the 2010 Frisco Real Estate Market

By The Cheney Group | On

2010 was a bumpy ride for the Frisco real estate market.  While we fared much better than many other parts of the country, Frisco was not immune to national housing market decline.  While there are many factors effecting the market, I found the following 3 to be the main drivers in 2010:

1) The federal housing tax credit

2) Lending and new appraisal guidelines

3) Foreclosure and short sale inventory effecting prices

1) The Federal Housing Tax Credit

In most years, we will see regular seasonal tendencies in home sales.  The market typically looks like a bell curve as you can see occurred in 2009 (see chart below).  In 2010, the federal government offered tax credits up to $8k for first time buyers and “move up” buyers living in a home for 5 years or more.  The program expired for all contracts after April 30, 2010.  This was a popular program for home buyers as many sought out this “free money.”  Many buyers who were planning on purchasing in 2010 decided to move their timeline up to take advantage of this tax credit.  As you can see below, the market was off the charts in the first 4 months of 2010, in a time period that is typically slow for real estate.

The first 4 months of 2010 were great for sellers.  Homes were selling in weeks instead of months and sellers were getting top dollar for their homes. You may have read articles that real estate had “turned the corner.”  However, as we have since learned this was fool’s gold.  After the tax credit had expired, the buyer’s disappeared literally overnight.  Those that were eligible for the tax credit had already made their purchase decision.  As you can see in the chart below, sales dropped off for the rest of the year and did not recover to prior year figures until the end of the year.

With the decrease in buyers, he market quickly became a buyer’s market.  With the increase in foreclosure activity (see discussion below), the few buyers remaining were deal seekers which made it a challenge to seller’s trying to be competitive.

Homes Under Contract 2010 vs 2009

2) Lending and new appraisal guidelines

Several years ago, obtaining financing for a home was literally as easy as signing your name.  Many qualified for $0 down home loans with closing costs rolled into the loan.  Of course, these types of loans led to many of our foreclosures.  As families struggled with the recession, many sellers felt a foreclosure or short sale was their only option if they fell behind on payments.  With lenders concerned with their bad loans and other economic factors, many banks chose to pull back on their exposure to home loans.  Conventional financing was tough to obtain unless borrowers had great credit and a minimum of 10% down payment.  This led to FHA Loans becoming popular again.  Few buyers had used FHA loans when they could do an 80/20 loan instead and avoid PMI.  With that option down, this was the only option for buyers with minimal cash available for a down payment.  FHA loans became the lowest down payment method to purchase a home, requiring only 3.5% down payment.

FHA Loans are insured by the government.  They allow lower down payment as well as credit scores.  In each local market, there is a maximum loan amount.  Frisco’s market limit is $271,050.  After factoring the 3.5% down payment, the max price locally to qualify for an FHA loan is $280,880.  Due to the surge in FHA loans, we saw 2 distinct markets, one for homes FHA eligible and one for those not eligible.  Homes that were priced higher than the FHA limits struggled substantially more due to the few # of buyers in the market.

3) Foreclosure and short sale inventory effecting prices

We already discussed the reduction in buyers the last 8 months of the year because of tougher lending standards and buyers purchasing early in the year.  The final major blow was the influx in foreclosure and short sales during this time as well.  With so much inventory coming on at such reduced prices, the few buyers out there had their pick of the litter.  Many decided to take advantage of the market and became deal seekers.  Unless a home was priced in the range of the foreclosures, it became difficult to compete.  Many sellers were faced with the difficult decision of taking a sizable loss or pulling the home off the market.  Those that had to sell often became distressed sellers.  It took most of 2010 to finally work through all of this inventory. The bright side is that we are now at a relatively stable level of foreclosure inventory and it is not effecting the market as much as many periods in 2010.

Despite these challenges, the Real Estate market in Frisco was better than most areas in 2010.  Assuming the foreclosure rate remains stable, I expect us to begin slight price growth in 2011 and things to start picking up briskly.  I feel we saw the bottom during the late summer of 2010.  Early January returns are already very good.  We have finally worked through the cyclical issues created by the tax credit and other factors previously mentioned.  Now that interest rates are creeping back up, the buyers have started coming back out.  The inventory is beginning to thin and pricing is stabilizing.  The outlook is certainly looking up for 2011.

Stay tuned for a coming post for further 2011 predictions.  Check out our article on the New Construction Market in 2010

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