A housing market crash typically consists of a 20 to 30 percent drop in sales prices, which can have significant consequences on the rest of the economy, provoking a financial crisis.
Housing market crashes typically happen due to a housing market bubble bursting and prices dropping. A housing market bubble is a temporary period during which the market is characterized by a low supply of homes, high buyer demand, and inflated prices. When the bubble bursts, the market crumbles.
Although real estate market crashes are significant threats, a market crash is unlikely for several reasons.
Many protective factors are at play to ensure a healthy real estate market, and macro-economic conditions—and predictions for the future—will protect the industry from further harm.
However, preparedness is always the best defense and home sellers would do well to anticipate these changes before they impact home sales.
Read on to learn more about the 2023 housing market—and why it likely won’t crash.
Will the Housing Market Crash in 2023
Many predict a market crash as price growth begins to slow throughout the U.S. housing market.
Economists maintain that a limited housing supply, high home prices, and high demand create the perfect conditions for a market downturn—but it is unlikely that we will face a crash in 2023.
Last year, Americans witnessed a dramatic shift in conditions affecting the real estate market.
First, the Covid-19 pandemic introduced remote work, causing more people to seek homeownership. Because many offers were priced higher than the asking prices, houses began to sell for more.
Additionally, investors purchased 28% of all single-family homes in the first quarter of 2022, driving prices up—and many homebuyers out of the market.
In March of 2022, the Federal Reserve proposed rising interest rates to quell inflation, and mortgage rates began to rise from 3 to 5.5 percent.
These conditions produced an extremely high-priced housing market, causing home sellers to benefit—and costing homebuyers.
Because of the above factors, some suggested that the market might crash. However, this scenario remains unlikely, as the market remains relatively strong.
Increased homebuilding suggests more housing inventory and homeowners’ balance sheets are much stronger today than during the 2008 great recession, leading experts to believe that an impact is unlikely.
Furthermore, housing experts maintain that current homeowners have higher credit and equity than once, protecting them against foreclosures and inhibiting further market downturns.
Rising interest rates, mortgage rates, and insurance rates —and the Federal Reserve promises to continue hiking insurance rates up— will protect the housing bubble from bursting.
Economic Macro Factors in 2023
Several important factors will likely affect the 2023 housing market.
First, the likelihood of foreclosure is much less prescient than during the great recession. Homeowners have relatively high credit and a significant amount of equity—and many have fixed-rate mortgage rates to protect them from debt.
In addition to home equity, homebuilders are relatively cautious about construction, limiting the number of homes available. Low inventory protects the economy from a crash by ensuring that there isn’t too much supply available to buyers without sufficient funds.
Other factors also ensure a relatively robust market.
First, demographic trends are producing first-time homebuyers in the market. There is high demand for homes among millennials, Latino families, and others. Buyers are more than willing to purchase homes, protecting the real estate market against a crash.
Additionally, lending standards remain relatively high. The Federal Reserve Bank of New York maintains that the average credit score for mortgage borrowers was 766—a relatively high number. Tight restrictions ensure buyers without sufficient funds won’t enter the market, causing a crash.
Lastly, foreclosures have reached a record low, suggesting the general health of the market.
All of these factors ensure a slowdown—but it is unlikely that the market will crash. With so many protective factors, most homeowners are safe from foreclosures, a sure sign of a relatively healthy economy.
However, home sellers are likely to be negatively impacted by these developments in months and years, suggesting that those wishing to sell their homes should do so now.
Long-Term Economic Context for the Real Estate Market
Many long-term economic factors will influence the real estate market.
First, real GDP growth is expected to slow in 2023 and then rise in 2024, creating unforeseen consequences for the real estate market.
Second, the recent collapse of three prominent banks, despite triggering unexpected losses to the banking system, will likely create some strain in the market. However, most consider the effects to be negligible.
Third, labor market tightness will likely moderate, preventing economic growth from rising disproportionately.
Real estate agents with Redfin maintain that 2024 will likely witness the end of market volatility following the Covid-19 pandemic, leading to more stable inflation rates and employment conditions.
Other real-estate-specific factors may impact the long-term economic context of the real estate market. Although many variables are at play, a few developments suggest steadily improving conditions for homebuyers—and disfavorable conditions for home sellers.
First, buyers are reentering the market after problematic economic stagnation during the Covid-19 pandemic. As people return to work, they are less likely to spend much time at home, introducing a potential market slowdown.
Experts estimate that wage increases and rent inflation will likely affect the real estate market, causing more people to consider buying homes.
Additionally, 78% of new homes are constructed in HOA zones, so contractors will likely build more homes in these areas.
Most experts believe that price growth will slow over the next few years, ushering first-time homebuyers into the market. Price declines may occur in some areas.
An expert panel with Zillow maintained that home-price growth would rise only .2% over 2023, and home value growth will drop from 5.5% in 2023 to 3.4% in 2024 and 3.3% in 2025.
Rising interest and rate hikes mitigate purchasing power, but not by much.
Additionally, because construction is relatively slow, it is unlikely that supply will be abundant with few buyers in the market.
The U.S. News Housing Market Index estimates that low inventory will remain so over the next five years, generating additional demand for housing and a steady but reasonable increase in U.S. home construction. Because new homes will likely have to adhere to rising environmental regulations, the growth will remain slow and steady.
These factors—and many more—will likely influence the market to the buyers’ advantage.
Housing Market Forecast in 2023/2024
The housing market forecast for next year and 2024 is tentatively optimistic.
Experts anticipate a housing market slowdown due to several factors. First, the post-pandemic boom has ended as home sales continue to fall. The FHFA house price index remained unchanged through the latter part of 2022, suggesting diminished growth.
According to a Zillow report, home values are projected to increase by 3.5 percent in 202 and 3.4% in 2024, ushering in favorable conditions for buyers seeking to enter the market.
The National Association of Realtors (NAR) suggests that housing prices may fall slightly, allowing more buyers to benefit from affordability in home values. Experts predict that the market will remain steady in 2023, inventory levels will remain low, and home-price growth will slow, provoking a downturn in home price growth.
Housing market predictions maintain these trends will likely continue, leading even more buyers to enter the market due to favorable conditions.
Though some markets will witness growth in home prices, others may experience decreased costs. The median home price is unlikely to drop, however.
Fortune and The Wall Street Journal predict that home values will fall in less desirable locations, bottoming out in 2024. After 2024, the market is expected to begin a slow recovery.
However, this period is likely unfavorable to home sellers seeking to reap the most profits from their home sales.
Fannie Mae and Freddie Mac predict that home sales will fall 5.4 percent in 2023 and 19.2 percent in 2024, provoking the downturn.
If you are trying to sell a home, consider selling it now before the market cools—while prices remain relatively high. Consider selling your home for cash now—we buy houses Chestenr residents are looking to sell.
Wrapping Up: Will the Housing Market Crash in 2023?
Ultimately the real estate market is unlikely to crash in 2023.
Because of high homeowner equity and credit, protective mechanisms such as slowed construction, and other factors, the housing market will remain stable throughout the coming years.
However, predictions maintain that inventory will remain low and buyer demand will likely remain high, creating conditions that might strain the economy.
Home price growth will likely slow, allowing more homebuyers to benefit from friendlier prices, which is good news for many people seeking to enter the U.S. housing market.
While these conditions are optimal for buyers, they are less advantageous to those seeking to sell.