How To Prepare for a Potential Housing Market Crash in 2023

For Sale Real Estate Sign In Front of Property. stock photo
Feverpitched / iStock.com

There’s been a lot of concern about the economy lately, particularly regarding inflation, rising interest rates, layoffs, a potential recession — and the housing market. The housing crash of 2008 left many families underwater in their mortgages, leading to a wave of foreclosures and people unable to move until housing prices appreciated or they built up enough equity to sell. 

See: 3 Things You Must Do When Your Savings Reach $50,000

As history repeats itself, buyers and sellers wonder if there will be a housing market crash in 2023.

Will There Be a Real Estate Housing Market Crash in 2023?

Though predictions vary, most experts do not seem to anticipate a housing market crash in 2023. Predictions do trend toward a decrease in real estate prices, with home prices dropping around 4% to 10%, with some experts forecasting a drop of around 20%, according to Fortune.

However, there is no way to predict the future for sure. Home prices and interest rates are at record highs. High mortgage rates pressurize the housing market infrastructure, which could tip the scales toward a deceleration in 2023. If it continues on this trajectory, it could potentially lead to a crash, especially with the nation’s limited housing supply.

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Is 2023 a Good Year To Buy a House?

Though many economists have predicted a course correction, or possibly even a real estate housing market crash, the market itself has not decelerated as much as previously forecasted.

That being said, mortgage rates are nearly double what they were in 2022 on average, even though there has been an overall decline in home sales. Even with this decline, home prices are still going up, which could make affording a new home more difficult. However, if this imbalance continues, it is likely that affordability will improve.

Other Factors To Consider When Buying a House in 2023

There are many factors that affect the housing market, and it’s important to consider every angle before you jump in to purchase a house.

Low Housing Inventory

Housing inventory has been low since the last real estate housing market crash in 2008. This also led to a decrease in new home construction.

This combination makes it a much more competitive market.

Rise in Foreclosures

After the COVID-19 foreclosure moratorium ended in 2021, the number of foreclosed homes increased as expected. Though foreclosures are up 72% from last year, the rate of increase appears to have leveled off towards the end of 2022.

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Occupancy Rate for Investment Property

If you’re planning to purchase a property to rent out, you want to be sure you’ll have tenants. The area of an investment property should have a high occupancy rate, ensuring tenants will be willing to rent the property.

If there are lots of available properties in a location, it may be a sign there are not enough renters to fill them or that there isn’t much demand for housing in the area.

Budget for Renovation

Some properties may need rehabilitation before they’re livable, especially if you purchase at a bargain price. Including some room in your budget for repairs and upkeep is critical.

Keeping the property current can also make renting more manageable and increase your rental income from potential tenants.

Steps To Capitalize on a Housing Market Crash

If you’re looking to capitalize on a potential housing crash, begin preparations early, as good property buys may be just around the corner. Here are a few tips for enhancing an investment property portfolio or starting one from scratch.

  1. Build Up Cash Reserves: Curtail any frivolous spending and redirect it to a savings account. While home prices may fall, the cost of a mortgage will increase due to current higher interest rates. The more cash you have for a down payment, the less you’ll ultimately pay in interest.
  2. Avoid Taking on Debt: Forego taking on debt that will eat into your monthly cash flow during the savings period. Rather than buying a new car or using your credit card for a vacation, keep the focus on savings.
  3. Eliminate Existing Debt: Investors should take a holistic look at their finances. If you’re currently making large debt payments toward unnecessary items, like an automobile or a large house, consider getting out from under it. 
  4. Research Areas To Buy an Investment Property: Housing prices haven’t crashed yet, and there is still time to maximize research efforts on investment properties. Look for houses in traditionally low-priced areas, such as the Midwest. 
  5. Consider Setting up a Business Entity: Investment property owners will want to set up a business to protect their assets and take advantage of tax incentives. If you’re clueless about the appropriate structure for your business, seek advice from a competent lawyer experienced in forming companies for investment property owners.
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Final Take: Is the Housing Market Going To Crash?

Will there be a housing market crash in 2023? It’s possible, especially if interest rates continue to rise and home inventory levels increase, but depends on many factors — and experts are mostly predicting a correction rather than a crash.

A housing price correction may be bad news for homeowners, but it’s an excellent time for investors to find some property bargains that can build up passive income streams. Even for many economists, trying to forecast what the 2023 real estate housing market will look like remains unpredictable.

FAQ

Here are some answers to common questions people ask about the housing market.
  • Will U.S. home prices drop in 2023?
    • According to Fortune, the majority of housing experts expect home prices to drop in 2023, though a few remain bearish and expect housing prices to increase through the year.
  • Will there be another housing market crash in 2023?
    • It's possible that the housing market will crash this year, but Forbes reports that a crash is unlikely in 2023. The real estate market seems to be headed for a correction of the inflated pricing of the past year and general stabilization, but not a drop in pricing dramatic enough to be considered a crash.
  • Is 2023 a good year to buy a house?
    • With housing prices unpredictable, the best way to tell if 2023 is a good year for you to buy a house is to go over your finances and see what you can realistically afford. You can use a mortgage calculator to see what your monthly payments are likely to be with the down payment you have and the interest rate you're likely to get with your credit.
  • Will California home prices drop in 2023?
    • Though California remains one of the most competitive housing markets at some of the highest price point averages, home prices have steadily declined for the last few months, starting in November. If this trend continues, it could be a bad sign for homeowners, but a good sign for those looking to buy in California.

Virginia Anderson contributed to the reporting for this article.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

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About the Author

Caitlyn Moorhead has written content for a variety of businesses and publications. After graduating from Central Michigan University cum laude, she moved to New York City where she wrote columns, articles and plays for several years before relocating to Austin, Texas in the fall of 2020.
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