Is the U.S. Headed for a Housing Market Crash in 2023?

High mortgage rates, soaring inflation, rapid growth over the past couple of years and other factors have been at the center of recent discussions on the fate of the U.S. housing market.

Though some experts—such as Barry Sternlicht, CEO of the private equity company Starwood Capital Group—have warned that the market is heading for a crash, others believe that any market adjustments will not be quite that severe.

As 2022 comes to a close, economists told Newsweek that although the housing market is currently in the midst of a correction, they don't expect to see it crash altogether in the new year.

The difference between a housing market crash and correction is that a correction's impacts are not as far-reaching and severe.

"I think a crash would be consistent with a lot of foreclosures: people losing their homes with prices falling below the amount of mortgage debt that's owed, and people giving up and being forced or voluntarily leaving their homes," Mark Zandi, chief economist of Moody's Analytics, told Newsweek.

According to the Federal Reserve Bank of St. Louis, up to 10 million mortgage borrowers may have lost their homes because of the housing market crash that it identified as beginning in the fourth quarter of 2007.

A market correction, on the other hand, is when a period of "unusual price growth" is followed by some price declines, like 5 percent, Lawrence Yun, chief economist at the National Association of Realtors, told Newsweek. In such an instance, there's no actual "crisis" in terms of foreclosures or people being forced to sell at a loss, Yun added.

Housing prices began to rise during the COVID-19 pandemic due to low inventory and high competition among homebuyers, with the elevated costs ultimately squeezing certain potential buyers out of the market.

After recording a 19.9 percent annual gain in May, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index reported a lower annual 18 percent gain in June. The index has continued to report declines in price growth since then, falling to a 10.6 percent annual gain in September.

With 2023 quickly approaching, Zandi and Yun both believe that the new year will not bring a housing market crash, but there will be some adjustments.

Zandi said that the market is currently in the middle of a correction, and that price declines will just be "retracing a few months of price gains." Something unforeseen would have to happen, such as a significant jump in mortgage rates, in order to change his opinion on whether the market will crash, Zandi said.

Yun said that there haven't been any instances in recent months in which he assessed that a crash was possible because the current situation is fundamentally different from 2008. Supply is limited now, but there was an oversupply back then, Yun said. He added that foreclosures are limited at the moment and there are also job-creating conditions.

Kelly Mangold, a principal at RCLCO Real Estate Consulting, also cited housing inventory in her assessment that the market is experiencing a correction that will likely last through a "portion of 2023," but is not headed for a crash.

"I think we're not going to see a situation like we did in 2008 because we have still been under-building inventory," Mangold told Newsweek.

She said that she was more wary about the state of the housing market now as opposed to a couple months back because of some price adjustments and a rise in mortgage rates.

But the low housing inventory, attributable to factors like builders slowing down their building and less existing homes going onto the market, is actually keeping prices in some areas "more stable than you would think just because there's a scarcity," Mangold said.

"I think we are more cautious about the for-sale market for homes in general right now," Mangold said. "A lot will depend on what ends up happening with mortgage rates over the next year or two, if the Fed really can get inflation under control and interest rates stop going up and maybe even start at some point going down again."