From brutally high inflation to a record-high 7% mortgage rate, it’s been a rough year for prospective homebuyers. A lot goes into understanding this housing market, but in recent months especially, experts have been speculating whether this housing market holds the same ominous signs of a crisis like that of 2008. While it’s been predictably hard to get a straight answer from economists, some are now saying they expect a “collapse” in home prices soon. Here’s why some experts are making this prediction and what falling home prices mean for you in 2023.
The state of the housing market right now
In the simplest of terms, the housing market is seeing low demand from homebuyers. Instead, we’re seeing more demand for rentals, with even wealthier households opting to rent instead of buy. There are also inventory issues, with fewer affordable units on the market. And as long as there’s low demand from buyers, there’s little hope for construction of new (potentially affordable) units. In summary: This year has seen fewer buyers in the market, since finding an affordable home is such a challenge.
As a result, home sales have fallen for the past nine months. According to reporting in Axios and Forbes, housing experts project home prices will keep falling into the new year. Since high mortgage rates and slowing sales have caused the market to take a hit, industry leaders like Goldman Sachs have come out recently to predict a 5% to 10% drop in home values between now and March 2024. So what does this projected large-scale housing slowdown mean for you?
What falling home prices mean for you
During the pandemic, we saw home prices go up, which led to many potential homeowners getting priced out of the market at the time. Even if homes do drop by 5% to 10%, Goldman Sachs says you shouldn’t expect home values to get down to where they were pre-pandemic. You may have also seen that mortgage rates have dropped over the past several weeks, but according to Axios, they’re still not low enough to significantly impact demand.
Most importantly for now, Forbes explains that these predictions still don’t necessarily indicate that we’re heading into a crash like in 2008. The key reasons for this are that unemployment remains low and many existing homeowners are still benefitting from locking in the rock-bottom rates of recent years. This means that a surge in defaults (like those of the 2008 crash) is unlikely.
The takeaway: Experts predict a decline in home prices, but not a total market disaster. At the end of the day, it’s important to keep in mind that all of this is still speculation. The experts have been wrong before.