Next housing market crash prediction for 2023

The housing market in most developed countries as soaring interest rates push mortgage rates to multi-year highs. At the same time, the yield curve inversion has led to elevated fears of a major global recession. In this next housing market prediction, I will look at whether the sector will clash in 2023.

State of the housing market

The housing market in most countries like the United States, Australia, and the UK boomed during the pandemic as interest rates dropped to a record low. In the UK, house prices jumped as the government provided more incentives, including the stamp duty reprieve to new home buyers.

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House prices also surged as most people stayed at home and accumulated savings that they then channeled to pay for deposits. Real estate prices rose as the cost of building materials like lumber jumped.

This year, however, the situation has changed and the property market is reeling. Data published this week by Halifax showed that UK home prices plunged at the fastest pace in 14 years. As we wrote in this article, Analysts expect that the situation will continue worsening as the UK is set to remain in a recession for a long period.

In the United States, analysts expect that house prices will drop by 12% from its peak and lowest level. Key metrics in the housing market have been relatively weak lately, including new and existing home sales data.

The same situation is unraveling in Australia. Analysts expect that house prices will crash by 16% from the peak to the bottom. 

As a result, share prices of housebuilders in most countries have crashed hard. For example, in the UK, shares of Persimmon have dropped by over 56% from their highest level in 2021. Similarly, other housebuilders. As shown below, stocks of companies like Lennar, D.R. Horton, and Taylor Wimpey have been in a downward trend.

Housing stock chart by TradingView

Housing market crash prediction

Most people associate a housing crash with what happened in 2008/9. At the time, house prices plunge at the fastest pace on record within a short period. Banks foreclosed thousands of homes. 

A similar crash will likely not happen in 2023 since situations are significantly different. At the time, the crash was caused by the rising subprime lending by banks. In this, they extended trillions of dollars to people who could not pay back. As such, the market collapsed as the number of defaults rose.

Today, subprime mortgage lending has dropped sharply as big companies have largely exited the mortgage market. Instead, this decline is due to soaring inflation and mortgage rates. It is also part of the boom and bust cycle.

Therefore, while home prices will drop in 2023, I expect no major contagion to happen in the housing sector. In this report, we noted that house prices will likely drop at a slower pace than expected since demand remains significantly high.