Will the Housing Market Crash in 2022 or 2023?

The real estate market has been pretty crazy over the past 15 months or so. Home prices in many U.S. cities have risen like never before. It has many people wondering, will the housing market crash in 2022, or possibly in 2023?

It’s a valid concern. After all, most of us can remember the last housing boom that ended in a nationwide real estate market crash and economic recession. So it’s only natural to wonder if it will happen again.

Here’s the short answer: It doesn’t seem likely that the U.S. housing market will crash in 2022. In fact, most forecasters predict that home prices will continue rising throughout next year.

A real estate market crash in 2023 is a bit harder to speculate on. After all, we’re only entering the fall of 2021. But again, a housing market downturn in 2023 appears unlikely — barring an unforeseen disruption to the nation’s economy.

Will the Real Estate Market Crash in 2022 or 2023?

Over the past year, tight inventory conditions and strong demand from buyers has made the U.S. real estate market highly competitive. With a lot of buyers in the market, but not enough properties available, bidding wars and multiple-offer scenarios became the rule of the day.

And while the real estate scene is still very active, it seems to have cooled down a bit. This is partly due to inventory improvements. Recent reports from Realtor.com and other groups have shown an increase in the number of new property listings coming on to the market (at least in most U.S. cities).

Which brings us back to the question at hand. Will the US housing market crash in 2022 or 2023?

Based on current trends and forecasts, it seems highly unlikely that the real estate market will experience a major downturn or crash in 2022.

It’s a bit harder to make predictions for 2023, since it’s so far out. And as we’ve seen over the past 18 months, there are many unforeseen variables that can disrupt the nation’s economy.

So, a housing market crash in 2022 appears unlikely. In fact, several recent forecasts predict that home prices in the U.S. will continue to rise through the end of this year and into 2022. They wouldn’t be making those kinds of predictions if they felt a major downturn was imminent.

Forecasts Predict Continued Home-Price Growth

In early October 2021, the real estate data company Zillow predicted that home values in the U.S. would rise by around 11.7% over the next 12 months. This would follow an actual gain of more than 17% over the previous year.

As of October 4, the company’s website stated:

“United States home values have gone up 17.7% over the past year and Zillow predicts they will rise 11.7% in the next year.”

Researchers from the mortgage-buying corporation Freddie Mac also expect prices to continue climbing into next year. Earlier this year, they predicted that U.S. home values would end up rising by 12.1% in 2021, followed by a 5.3% increase during 2022.

Lastly, we have the Mortgage Bankers Association. The industry group also sees home prices rising throughout 2022. Their long-range forecast falls in between the Zillow and Freddie Mac predictions mentioned above.

Granted these are just forecasts. So we probably shouldn’t focus too much on the exact numbers being projected here. The bigger point is that housing analysts and economists do not expect to see a major housing market crash in 2022.

With that being said, some real estate markets across the country could experience a cooling trend over the coming months. It’s a safe bet to say that home prices in many cities will rise more slowly in 2022, compared to the past 12 months.

A cooling trend would be a positive development at this point. The U.S. real estate market needs to cool down a bit, following many months of superheated activity. A slowdown in home-price appreciation could actually help us avoid a housing market crash scenario. It would put us back on a more sustainable path, compared to the rapid price growth of the past year.

Factors That Could Prevent a Housing Market Crash

To summarize, there probably won’t be a real estate market crash in 2022. There are several reasons for this, most of which overlap in some way.

Here are four factors that could protect the U.S. housing market from a crash scenario:

1. An ongoing supply shortage

Tight supply conditions within the nation’s real estate market will continue to favor sellers over buyers, at least for a while.

During the last housing market crash, we actually had a surplus of homes on the market (relative to the number of buyers). But things are much different in 2021.

In many local real estate markets, there aren’t nearly enough homes for sale to meet the demand from buyers. These trends will continue to put upward pressure on prices through this year and into 2022.

2. Stricter mortgage lending standards

Reckless mortgage lending practices contributed to the last housing crash, which came to a head in 2008. But here again, things are much different this time around.

Mortgage lending standards are stricter today than they were during the last boom. These days, most of the people who are getting approved for home loans are generally well qualified.

3. Steady demand from home buyers

We could see a decline in home buyer demand as we move into 2022. Home prices have risen so much that many buyers have been priced out of the market all together. So there might be a slowdown in sales on the horizon.

Even so, there should be enough demand to help sustain the real estate market and bolster prices. The mortgage Bankers Association expects home purchase activity to remain fairly steady through the end of this year and into 2022.

4. Overall economic stability

Even during the worst stages of the coronavirus pandemic, the U.S. economy continued to march on. The real estate market, in particular, has been largely unfazed by the pandemic.

And we continue to see signs of economic improvement. Last month, the Bureau of Labor Statistics announced that the nation’s unemployment rate had fallen to 5.2%. That’s down from a high of 14.8% in April of 2020.

Consumer spending has also been on the rise in recent months. These and other indicators paint a picture of overall economic stability.

A Slowdown Appears Likely (and Helpful)

So, will the real estate market crash in 2022 or 2023? As we’ve explained above, that scenario seems unlikely at this stage. Steady demand from buyers, limited supply, and overall economic growth should keep the real estate market chugging along for the foreseeable future.

But we could certainly see a general cooling trend in 2022 and 2023. At present, our best guess is that the real estate market will become a bit more buyer-friendly in 2022, especially if inventory levels continue to rise.

Sales activity and prices could both slow down next year. This seems to be the general consensus among many housing analysts.

Lawrence Yun, chief economist for the National Association of Realtors, recently told MarketWatch:

“Home sales will further decline in 2022 as the Federal Reserve becomes less accommodative, which could send mortgage rates higher ( making it more expensive to buy.) Home sales in the first half have been solid, so the annual sales in 2021 will be higher and the best since 2006. But sales will be lower by 3% to 5% in 2022. Home prices are unlikely to decline, though future gains will be moderate.”

Disclaimer: This article includes predictions and forecasts relating to the housing market and broader economy. They are the equivalent of an educated guess and should be treated as such. No one can predict future real estate trends with complete accuracy.