Real estate housing market crash: What will happen? guide

There has been a substantial increase in the number of people asking me questions about a potential real estate housing market crash. And many of them are starting to fear what the future might hold, especially after considering the home price growth that reached record highs during the first part of the year.

So I decided to write this post with all the questions I got and their answers. You should be able to find that one answer you are looking for here. However, if it isn’t, please ask the question in the comments below, and I will be more than happy to answer it for you. 

Use the table of contents below to jump around topics if you want something particular. 

Suppose you want to have a complete understanding of the matter. I suggest you read the whole thing. You will not be able to understand what your friends are talking about next time, but you will also be able to have a strong opinion on the matter.

Table of Contents

I assume you decided to read the whole article if you’re reading this. Congrats! Before jumping into the deep questions. We need to understand the basics of the real estate market crash. So first thing!

What is a real estate housing market crash?

We call it a “real estate housing market crash” when there is a steep price decline in home values of more than 10%. Also, remember that, more often than not, it comes following a period of inflated house prices. Remember that everything that goes up has to come back down. 

Terms like “housing bubble” and “housing market bubble” are other ways of referencing an inflated market. We also use terms like “bubble pop” whenever the housing market stops inflating and starts declining. So, do not be confused next time you hear these words. They are just terminology in the real estate world.

Remember that we only call it a “crash.” When the home price index falls more than 10%, otherwise, it is just a “correction,” and you have nothing to worry about.

Will the real estate housing market crash in 2022?

Economists at the Federal National Mortgage Association expect prices to be 16% higher in the last quarter of 2022 than they were a year ago on average! However, existing home sales dropped 24% during September. So it is just a matter of time until home sellers realize this and have to make adjustments. In other words. Prices are still rising, while housing demand is declining, and the number of houses for sale increases daily.

Take that information lightly. It is an extensive study and prediction. If you go on your favorite real estate website right now. It is divided into two, people who are likely interested in selling their house for whatever reason. And the people just trying to jump on the housing bubble boat way too late and would only sell their house if someone paid them enough. It is easy to spot this group of people out since their listing prices are outrageous.

Will the real estate housing market crash in 2023?

It most likely won’t. Most experts predict a “correction,” but very few believe it will crash.

I mentioned before that The World Bank is expecting a global recession in 2023, remember? And just that alone will affect the real estate market in 2023.

But there are also a few other things to consider, like supply and demand (which we also already discussed). I mentioned to you earlier how, during September, house prices in the United States went up 14%. But that information alone can be deceiving if you were only to take that into account. It might seem like the market is doing great and still thriving. I am going into so much detail about this because I have repeatedly seen realtors post this information on their social media to convince contacts to buy a home. However, this is just half the information you need to decide. They need to tell you that home sales have dropped even more!

This means the demand is going down. As mortgage rates, inventory, and prices keep are still on the rise. Buyers are being forced out of the market, and it is just a matter of time until sellers notice this and make adjustments.

When will the real estate housing market crash Again?

According to a survey by CNBC, nearly half (48%) of CFOs polled said they expect a recession in the first half of 2023. This will take more than just a few people by surprise and certainly affect both sellers and buyers simultaneously. More single-family homes will be put up on the market for sale in an attempt for people to make ends meet. And it will also affect buyers since they may either be forced out of the market or at least decrease their budget. Not to mention that mortgage rates will keep rising, and many sellers haven’t realized that the market today is not what it was in January.

However, this is an indicator of a real estate market correction and nowhere near as bad as a crash.

A real estate housing market crash may never happen again unless banks and lenders make the same mistake they did in 2008.

Top 3 real estate housing market predictions in the US

Winston Churchill once said, “if you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions,” this is a rather funny and clever way of expressing that economics is not an exact science. Economists frequently make wrong predictions, especially when analyzing something in the far future. 

Predicting something that may happen in the short term is much easier. So my advice to you is to read this post and keep an eye out as everything progresses so that you can make more accurate predictions every day. Don’t have time for that? No worries! Save this post and come back to check it. I will be updating it every week with more information.

Real Estate forecast in the next 5 years, is it profitable to invest?

It all depends on the type of investment you are looking to make and whether you are paying cash or getting a loan. 

You need to sit down and crunch numbers for your specific situation, which can be difficult for you if you are still determining what numbers you need to consider.

Luckily for you, though, Instead of boring you with all the different scenarios. 

Our website counts with entirely free real estate calculators! We designed each calculator for a specific case, so you don’t have to do any math! Just find the one you need, enter the info in the fields, and that’s it!

Perhaps you are afraid it will be as bad or worse as it was in 2008. If that is the case, keep reading.

Real estate housing market crash 2008 |Explained

Let’s start by saying that it is improbable that we will be experiencing a similar situation we lived in in 2028 in the next couple of years. Both cases are entirely different, and I will explain to you how!

Why did the housing market crash in 2008

The 2008 real estate market crash happened because many homeowners could not make their mortgage payments! 

This situation forced them to put their house for sale and try and sell it as fast as possible. 

But the problem was that this did not happen to just a couple of people. This happened to close to 10 million Americans simultaneously! So imagine all of those houses going up all at once! Well, you don’t have to imagine it, you saw what happened. 

This was an unfortunate and hard time for Americans since this was followed by the great recession that cost many their jobs, life savings, homes, and in many cases, all three.

But it was not their fault, which brings us to the next question.

What caused the housing market crash in 2008

The 2008 housing collapse began with lenders and banks offering very low mortgage rates while failing to qualify buyers properly and overlending. This fueled the 2008 housing bubble. When the bubble finally burst, the banks were left with trillions of dollars worth of worthless investments in subprime mortgages. 

2008 housing market crash timeline

  • 2006, $600 billion of subprime loans were originated, and they counted for 23.5% of all mortgage originations. (Prices began to fall in this period)
  • In early 2007, subprime lenders began to file for bankruptcy.
  • In August 2007, losses from subprime loan investments started causing fear in the global lending system.
  • In September 2007, Lehman Brothers collapsed in the biggest bankruptcy in the history of the country.
Housing market crash timeline graph (2008)

Will the real estate housing bubble burst Soon?

First, the quick increase in house prices does not necessarily indicate a housing bubble. There are other essential factors to take into account. 

Many believe house prices will continue to increase throughout 2023 but at a very slow rate. However, we shouldn’t forget that many economists also predict a recession in 2023, and as of September, house prices still increased, but sales went down considerably. Ad with both a recession and higher mortgage rates, we could see a price drop. 

In the event of a housing market collapse, what will happen?

Most importantly, you will find a decrease in home values/prices as the market transitions into a “buyers’ market.” This is when the buyer has more leverage on the transaction than the seller. This means sellers will be more desperate to sell their house than in other markets since there is less demand for their property. And you can also find more sellers willing to negotiate the price. 

Another important thing we see during a real estate market collapse is the increase of people looking into alternatives to sell their homes. A 6 percent commission is just too much money. Especially when you consider that sellers pay for that commission and not banks, you will have to pay the full commission and your entire mortgage at the time of the sale. 

How does a real estate market crash affect the Economy?

More often than not, a market crash brings foreclosures with it since many homeowners can no longer afford to pay their mortgages, forcing them to give up their homes. This can cause a domino effect on the economy since this would likely transform into lower property values.

Real estate market crash or inflation

Inflation is just one factor contributing to the possibility of a crash. The current inflation we are experiencing is above average, and the forecast is nothing to brag about, either. 

Inflation on its own shouldn’t cause a crash. But, the likelihood increases when taking all of the other factors we are experiencing, plus the forecasts of each. 

This article should give you a better understanding of why and how everything is happening. It is your job, though, to stay alert for updates in the market and consider them as everything progresses. 

Housing market crash or interest rates

If the downturn in the economy wasn’t enough. Bankers and lenders keep rising mortgage rates and expect to keep doing so throughout 2023. 

The continuous rise in interest rates all over the country makes buying an already overpriced house a not-so-appealing idea to buyers anymore. And it also forces some buyers out of the game. And I do not know you, but I will not pay twice as much (or more) on interest rates when the houses are already overpriced. 

To put this into perspective. The median annual income in the United States of $71,000, while putting a 20% down payment in January 2022 when the interest rate was 3.1%, could afford a $448,700 loan/home. In contrast, with a 7% mortgage rate, the same household could only afford $341,700 with a 30-year fixed mortgage. That’s a huge difference! 

Real Estate housing market correction vs a crash

The difference between a correction and a crash is very simple, and we can tell them apart from simple math.

We call it a real estate correction when the drop home price index falls less than 10% from the highest price within a year. And we call it a crash when it is above that 10%.

Is selling or buying a home in the US now a smarter move?

It depends on your specific situation. There are better ideas than buying a house with a loan right now. However, if you are paying cash for it, you are lucky!

The same goes for selling a home, especially when you will likely have to buy another one, right? 

There are way too many possible scenarios to list in this post. But, if you want to learn more on this subject and find out more about the right decision for your situation, read. Should I sell my house now or wait until 2023?

How the federal reserve affects the real estate market.

The federal reserve doesn’t set mortgage rates. They change their federal funds’ rate, and this indirectly affects mortgage interest rates. They implement monetary policies that affect the price of credit.

Frequently Asked Questions (FAQs)

When is the housing market going to collapse?

This is incredibly hard to predict, especially in the long run.

What I am trying to tell you is that no one can say for sure that there will be one happening anytime soon. However, a crash is very unlikely to happen soon. Remember… Everything so far is pointing toward a market correction instead.

When is the housing market expected to crash?

Most professionals and experts do not expect a real estate crash anytime soon. However, I remember that is what everyone said before 2008.

When was the last housing market crash?

In 2008, during The Great Recession, that slowly started in 2005. The situation then was completely different from the one now. And seeing another crash is very unlikely but never impossible.

Will home prices drop in 2023?

While most realtors say they won’t.  Ivy Zelman, who happens to be the analyst that predicted the housing market collapse of 2008, suggests that we will see a drop of 4% in home values during 2023

Would you buy real estate before the recession hits?

I wouldn’t. I just moved to South Florida this year, and my wife and I refused to buy a place and are currently renting. We believe both prices and rates will come down at some point soon.

Is the housing market good for buyers?

Buying a house during a recession can be an excellent idea. Please make sure you will be capable of remaining financially stable.

What happens to homeowners if the market collapses?

Many homeowners face the same issue during a crash: their property’s value drops more than what they owe on their mortgage. And if they can not afford the new higher payments. Then most likely, they will be forced to foreclose while also filing for bankruptcy. 

Will the housing market crash in 2024?

With all of the information we have today, most economists anticipate a rebound and rise again in home values in 2024. So most likely, we won’t be seeing a housing market crash.

Join The Discussion

Compare listings