KEY DETAILS
- Experts expect home prices to decline between 0-9%.
- With low inventory and homebuilder sentiment, supply is too low to meet buyer demand.
- Demand will increase more as more Millennials and Gen Z-ers enter the market.
- Two major differences from the 2008 market: strict lending standards and low foreclosure activity.
With mortgage rates hovering around 7% and a strong likelihood of recession around the corner, buyers and homeowners are asking, “Will the market crash?”
Housing economists have been quick to offer some clarity on the situation. Overall, they agree home prices could fall, but the decline won’t be as steep as experienced during the Great Recession—for (at least) five compelling reasons.
Before we get to those reasons, let’s talk about home price forecasts.
EXPERTS FORECAST SINGLE-DIGIT DECLINES IN HOME PRICES
Housing economists weighed in on the potential for steep nationwide declines in home prices. While there isn’t a clear consensus, expert predictions top out at price declines in the single digits.
Most markets are going to experience price declines in the high single digits.
Robert Dietz
Chief Economist for the National Association of Home Builders (NAHB)
While price declines of 8 or 9% may cause some economic pain, it pales compared to the collapse in home prices during the Great Recession, when some markets saw prices drop by 50%.
Rick Sharga, Executive VP of market intelligence at ATTOM Data Solutions, sees home price declines as “almost inevitable” but expects them to be around 5% rather than 8-9%.
NAR Chief Economist Lawrence Yun sees high-priced markets like California as most vulnerable to an economic downturn. He does not expect the Midwest to see a decline in housing prices.
Overall, Yun expects national home prices to remain flat in 2023.
THE MAJORITY OF HOUSING EXPERTS DO NOT EXPECT A CRASH
While some decline in home prices seems inevitable, the majority of housing experts do not expect a crash. Nor do they expect the decline in buyer demand to pose a significant threat to the overall economy.
For one, we still have more buyers than available properties, which is the exact opposite of what happened in the 2000s.
Federal Reserve Chair Jerome Powell has even said the U.S. is not in a recession—though it seems likely in the near future.
I do not think the U.S. is currently in a recession, and the reason is there are too many areas of the economy that are performing too well.
Jerome Powell
Federal Reserve Chairman
Housing experts who don’t expect a crash point to the following five reasons:
1. Low Inventory
2. Under-investment in new construction
3. New buyers
4. Stricter lending standards
5. Low foreclosure activity
