Will There Be a Housing Market Crash? One Key Factor Explained

A shortage of homes for sale is keeping the U.S. housing market afloat despite many experts' belief that the housing market would tumble this year.

As the Federal Reserve continues to hike interest rates to combat inflation, there were predictions that 2022's booming market would end in 2023. Mortgage rates have soared past 7 percent—more than double the average 3.22 percent rate for a 30-year mortgage in January 2022—but the housing market has remained stable as low inventory fuels a supply shortage.

Logic had experts believing that the housing boom would reverse, with some anticipating a market crash. But so far the predictions have not come true. In June, government-controlled mortgage company Fannie Mae revised previous predictions it made about the 2023 market.

In its revision, Fannie Mae estimated that prices will decline by 1.2 percent during 2023, an improvement over the company's February prediction that prices would drop 4.2 percent. The revised housing forecast also anticipates that housing prices will decline by 2.2 percent in 2024, .1 percent less than its February prediction.

Last week, Fannie Mae released a statement in which it anticipated that a recession is still the "most likely outcome" of the Fed's policy on interest rates, while the ongoing supply shortage has sustained high home prices from last year's booming market.

Fannie Mae attributed the current housing market boom to a lack of existing homes for sale, which didn't improve this spring even though it's the season when many homeowners put their properties on the market. The lack of available homes has spurred new home construction.

Newsweek reached out for comment to Fannie Mae through an online comment form.

Douglas Duncan, Fannie Mae's senior vice president and chief economist, said in a statement that while core inflation remains high, housing prices are still strong.

"Housing prices continue to show stronger growth than what was previously expected given the suddenness and significant magnitude of mortgage rate increases," Duncan said in the statement.

Duncan also said homebuyers who had locked in a low mortgage rate before the housing boom are reluctant to sell and face a higher rate. He also attributed the low supply to aging baby boomers, many of which are choosing to stay in their homes rather than downsize.

"Homebuilders continue to add to that supply, but years of meager homebuilding over the past business cycle means the imbalance will likely continue for some time," he said. "We do expect housing will be supportive of the overall economy as it exits the modest recession."