Will
the Housing Market Crash in 2023?
By Maurie Backman | Published on Nov. 19,
2022
It's a concern for sure --
but necessarily a spot-on one.
Key points
- Recession warnings have some homeowners
and sellers worried about a real estate crash.
- While home prices could come down in
2023, they're unlikely to plunge drastically.
"Gear up for a recession
in 2023." That's the message the media seems intent on conveying, and
understandably so.
For months on end, a lot of
big names in the financial world have been warning of a recession in the
new year. These experts are convinced that aggressive rate hikes on the part of
the Federal Reserve will cause consumer spending to decline dramatically,
thereby leading to a broad economic downturn and spurring a wave of
unemployment.
If a recession does hit, it
could have a significant impact on the housing market. Buyers might pull out of
the market for fear of losing their jobs or not wanting to take on the expense
of homeownership at a time when things are so precarious. Plus, mortgage rates are
high right now, and they're likely to stay that way going into 2023. So that
alone might push more buyers out of the market.
As such, it's easy to see why
some homeowners and potential sellers are worried about a real estate market
crash in the new year. But are those fears valid?
Why things
probably won't be so bad
Is it possible that home
prices will start to drop in 2023? Absolutely.
The main reason housing
prices are so elevated right now is that there's not enough real estate supply
to meet buyer demand. But if buyer demand declines next year due to recession
concerns (or an actual recession) and higher borrowing costs, it could lead to
lower property values.
But there's a big difference between a drop in home prices and a full-blown housing market crash. And while the former is a strong possibility, the latter is less likely for one big reason -- there's a lot of "down" to go.
Right now, home prices are
very elevated compared to where they were a year or two ago. If home prices
decline 10% or 15%, it won't necessarily create a national crisis where millions
of homeowners are underwater on their mortgages (which happens when a home
loan balance exceeds the value of the home being financed). Rather, it just may
be the case that sellers can no longer walk away with the massive profits
they'd be looking at today.
To put it another way, a
given home that may have been worth $300,000 at the start of 2020 may now be
worth $345,000. If the value of that home drops to $315,000 in 2023, that
doesn't mean its value has crashed -- it just means it's lower than it was at
its peak.
Prepare for
lower home values
While the housing market is
unlikely to crash in 2023, sellers should expect property values to creep
downward. And so those interested in finding a buyer should get moving with a
listing sooner rather than later.
The upside of selling a home
right now is that there's not a lot of competition, and we're not in a
recession yet. In fact, the labor market is still quite strong. Listing a home
now means getting ahead of a possible housing market decline.
Plus, some people may have
the goal of becoming homeowners before the new year arrives. So it's a good
time to put a home up on the market despite the fact that colder weather is
around the corner.
ABOUT THE AUTHOR
Maurie Backman writes about current events affecting small businesses for The Ascent and The Motley Fool.
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