Housing Market Crash 2022: What to Expect When Interest Rates Rise (2023)

The central theses

  • Existing home sales were down 0.4% from July for an overall 19.9% ​​year-on-year decline. This is attributed to higher mortgage rates making monthly payments more expensive than ever.
  • Google Trends shows that searches for "home market crash" have skyrocketed over the past month.
  • Mortgage rates have hit a 20-year high as the Fed tries to fight inflation and cool the economy.

Many hopeful homeowners have been waiting for a real estate market crash so they can finally enter the market. While house prices appear to be softening, homes are not becoming more affordable as mortgage rates have skyrocketed, hitting a 20-year high.

Consumers are uncertain about the future of the economy as inflation continues to soar. As the Fed continues to hike rates to restore the balance between supply and demand, many potential home buyers are unsure what to do. They want to get into the market, but many of us are being held back by fears of a recession.

Due to interest rate hikes, the real estate market is cooling off in terms of sales and prices. But there is more to tell as the fight against wage inflation continues. We will examine the possibility of a housing market crash as interest rates rise.

Why are interest rates still rising?

The Fed has been raising rates since March 2022, when it finally had to admit that inflation was no longer transitory. When the cost of borrowing increases, mortgage rates are affected. The Fed has even hinted at interest rates of 4.6% in 2023.


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As the Fed fights inflation by raising rates to slow the economy, there will be many sectors that will feel the pain. The housing market is one area where the impact will be felt as mortgage rates will make consumers reluctant to enter the market.

What do rate hikes mean for the housing market?

Rate hikes are plannedslow down the housing market, which has catapulted itself to new heights in recent years.

The country was already struggling with housing shortages before the pandemic began. Then, when the pandemic struck, many people were working from home and had the flexibility to relocate.

With so many Americans choosing to relocate because of their newfound freedom from remote work, it increased demand in smaller markets and fueled bidding wars.

The biggest problem with rate hikes is that everything becomes more expensive for the average consumer. This is frustrating as inflation is already driving prices up and people have to contend with additional increases in Internet tariffs.

(Video) How do RISING Mortgage Interest Rates Impact Housing Prices? Will Housing Crash?

Rising interest rates make mortgage payments more expensive. In September 2022, the average interest rate of 6.29% on a 30-year fixed-rate mortgage meant that on top of the increased cost of everything else, that added $600 to homeowners' monthly expenses.

In the future, prospective homebuyers will hesitate to enter the real estate market because it is more expensive to borrow money. This doesn't even account for additional support needed for home upgrades.

What is happening on the real estate market right now?

There are always many factors that affect the housing market, from home sales to houses on the market to interest rates. Here's what's happening in the real estate market right now.

Interest rates make mortgages seem unaffordable

With interest rates just hitting a 20-year high, many people are reluctant to enter the real estate market. Current house prices are too high for consumers who are already struggling with rising inflation and the looming recession.

With mortgage rates rising from 3.05% to about 6.92%, the monthly mortgage payment on the median asking price of a home has increased by 51%. A $1,698 mortgage payment is now $2,559 per month.

Real estate prices are falling

Economists at Fannie Mae FNMA have forecast that house prices will fall by an average of 1.5% nationwide. That's a departure from the original forecast of 4.4 percent home price growth for the year.

Average home prices fell 0.98% in August, according to Black Knight, a real estate software company. This is only marginally better than July's 1.05% drop and means that July and August had their biggest monthly fall in house prices in 13 years.

These numbers show that rate hikes are working to some extent, at least in enough local markets to affect national averages.

Home sales are cooling off

Existing home sales were down 19.9% ​​year over year, according to the National Association of Realtors. While the August number came in ahead of expectations at an annualized pace of 4.8 million, down 0.4% from July.

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Research by Redfinidentified some key real estate metrics that show how home sales are declining:

  • Houses sold were on the market for an average of 33 days, up from 25 days last year.
  • New listings for sale were down 19% year-on-year.
  • 30% of homes sold were sold above list price, up from 45% last year.
  • Mortgage applications were down 39% year-over-year.

These numbers show that home sales are finally slowing as plans to cool the economy through higher interest rates are making a noticeable difference in the real estate sector.

Now it's time to address the elephant in the room.

Will the real estate market collapse?

According to Google Trends, US search results for “housing market crash” are up 284% in September. Many people are concerned about the possibility of a crash as many people watch how the economy reacts to interest rate hikes.

There's a difference between a housing market collapse and a slowdown in home sales. Federal Reserve Chair Jerome Powell spoke last month that the housing market was cooling and likely to undergo a correction immediately after the 0.75% rate hike announcement.

Powell also mentioned that the Fed wants supply and demand to be better matched so home ownership is not out of reach for the average American. The problem is that it's difficult to construct the perfect situation in house prices.

Realistically, record high house prices coupled with high interest rates are causing people to put off their home ownership plans. Even if property prices are softening, there is not much of a difference yet as prices have risen drastically during the pandemic.

The reality is that we will need many more months of falling home prices.

One thing to watch out for is whether we're officially entering a recession. This would mean the economy shrinking, leading to various financial consequences, from job losses to shrinking the entire economy.

(Video) Housing Market Forecast 2023 - It's Different than What You're Hearing

Fannie Mae economists believe the housing market will plunge the economy into recession in 2023.

The aim of the interest rate hikes was to restore the balance between supply and demand. However, we need to be mindful of what would happen if both supply and demand collapsed at the same time.

We will be following the property inventory as there can be major problems when there are not enough homes for prospective buyers. There is currently an apartment offer on the market for around three months.

Realtor.com is seeing a 26.9% annual increase in national inventory of active listings. That means there are still options on the market for those looking to buy homes.

How should you invest?

Deciding how to invest in real estate can be difficult when you see interest rates rising and the constant rumble of slowing sales. Until the real estate market cools down further, most of us will continue to invest in the stock market while we work to save enough money for a down payment.

If you want to invest your money the right way, Q.ai takes the guesswork out of investing. Our artificial intelligence scans the markets for the best investments for all types of risk tolerance and experience levels. Then it bundles them ininvestment kitsthat make investing easier.

The final result

Higher interest rates and the general uncertainty in the market are making us all nervous about the real estate market.

It is difficult to determine what will happen next as we await the results of these constant rate hikes. However, we know that bidding wars seem to be a thing of the past as house prices slowly ease.

Download Q.ai todayfor access to AI-supported investment strategies. If you deposit $100, we'll add another $100 to your account.

(Video) The US Housing Market Just Imploded (Worse Than 2008)


Do interest rates go up when housing market crashes? ›

Buyers are in a better position to take advantage of the increasing availability of houses now that sellers are asking for more reasonable prices for their properties. If there is a downturn in the economy, mortgage interest rates will very certainly fall to about 4 percent or even lower.

Will house prices fall when interest rates rise 2023? ›

Rising interest rates tend to cause increases in home values to shrink. However, given that interest rates rose so quickly in 2022, it might still force home prices to come down further in 2023. Home price trends also depend on whether supply can keep up with demand.

How will interest rates affect house prices 2022? ›

Then, in late 2022, mortgage rates surged higher than they had been in two decades, and the housing market slowed dramatically. Economists expect price declines of anywhere from a few percentage points to more than 20 percent.

What happens to interest rates if market crashes? ›

Key Takeaways. Interest rates usually fall in a recession as loan demand declines and investors seek safety. A central bank can lower short-term interest rates and buy assets during a downturn.

Is the US headed for a housing market crash in 2023? ›

It's highly unlikely that the housing market will crash in 2023. Current home prices are trending downward from their 2022 peaks but there are no signs that the housing market will crash. Learn more about what conditions are needed for a housing market crash to occur in 2023.

Is it better to buy a house when interest rates are high? ›

Rising interest rates affect home affordability for buyers by increasing the monthly mortgage payment. Despite how it seems, there are benefits to buying when interest rates rise. Less buyer competition forces home sales prices down, opens up more choices for buyers and can reduce buyer risk.

How long will interest rates stay high? ›

However, many industry experts believe within 18 to 24 months rates will be back to a more 'palatable' level. Somewhere like 2.5% to 3.5% for example.

Will 2023 be a good time to buy a house? ›

Levine added, “Home prices will also moderate further over the next several months as interest rates remain elevated in the near term and seasonal factors come into play.” CAR in its 2023 California Housing Market Forecast report, predicts a 7.2% drop existing single-family home sales in 2023.

How high could interest rates go in 2023? ›

In its fiscal forecast, published in November 2022, the OBR predicted that the Bank Rate would rise from 1.6% in Quarter 3 2022 to 4.8% in Quarter 3 2023 and 4.5% in Quarter 3 2024.

Will mortgage rates go down to 3 percent again? ›

But we're not going back to 3 percent anytime soon, because inflation is not going back to 2 percent anytime soon.” It's important to have a realistic vision for what you can expect this year, and that's where the advice of expert real estate advisors is critical.

Will house prices go down in 2023 usa? ›

Some regional markets are projected to see home price declines. In their latest forecast released in February 2023, they now predict that home values will fall in 326 of the nation's 895 regional housing markets between January 2023 and January 2024.

Should you buy real estate during inflation? ›

Historically, real estate has proven to be a stable investment during inflation. Whether it's a single family home, multifamily or even commercial real estate, many investors are paying more attention to the asset class for its stability and tax benefits while stock markets look murky for the foreseeable future.

Will raising interest rates stop a recession? ›

In other words, when the Fed increases interest rates, it reduces demand for goods and services, which could result in companies hiring less or laying off their workers and potentially lead to a much-feared recession.

What assets do well with rising interest rates? ›

The types of investments that tend to do well as rates rise include:
  • Banks and other financial institutions. As rates rise, banks can charge higher rates for their mortgages, while moving up the price they pay for deposits much less. ...
  • Value stocks. ...
  • Dividend stocks. ...
  • The S&P 500 index. ...
  • Short-term government bonds.
Aug 2, 2022

How do you profit from rising interest rates? ›

You can capitalize on higher rates by buying real estate and selling off unneeded assets. Short-term and floating rate bonds are also good investments during rising rates as they reduce portfolio volatility. Hedge your bets by investing in inflation-proof investments and those with credit-based yields.

What will property prices be in 2023? ›

Now, however, most experts agree that increases are on the horizon for buyers in the capital. In the 2022 - 2026 Residential Report, JLL data suggests that in 2023, London is set to see the highest price increases in the country over the year at 5.5%.

Will prices go down in 2023? ›

Historically, home prices tend to rise over time, not fall. Prices are currently coming down in some markets, but experts do not expect dramatic drops, at least not for early 2023. In many areas where prices are falling, the declines have not significantly improved affordability.

What is the best date to close on a house? ›

The closing date you choose for your home purchase matters because it determines some of the expenses you pay at closing. For most home buyers, closing at the end of the month is ideal because you'll pay less interest upfront.

What are projected interest rates in 5 years? ›

They provide insight into interest rate forecasts over 5 years. An interest rate forecast by Trading Economics, as of 2 March, predicted that the Fed Funds Rate could hit 5% in 2023, before falling back to 4.25% in 2024 and 3.25% in 2025.

What happens to my mortgage if interest rates increase? ›

If you're thinking about getting a mortgage, changes to interest rates might give you cause to pause. As mentioned previously, the higher the interest rate, the higher your repayments will be. On the contrary, a lower interest rate may be a sign to act now in terms of your house hunt.

What is a good interest rate on a house? ›

What is a good mortgage rate today? Mortgage rates change all the time. So a good mortgage rate could look drastically different from one day to the next. Right now, good mortgage rates for a 15-year fixed loan generally start in the 5% range, while good rates for a 30-year mortgage typically start in the 6% range.

Should I fix for 2 or 5 years? ›

The longer the fixed term, the higher the risk that average rates fall below yours and you pay more than you'd otherwise have to, you also lose some flexibility. Based on the current economic predictions for 2023/24 a 2 year fixed rate could be a good idea if you are able to lock in a good rate before the end of 2022.

How long before interest rates drop again? ›

After home financing costs nearly doubled in 2022, some relief is in sight for potential homebuyers in 2023.

How quickly will interest rates go down? ›

Are mortgage rates expected to rise or fall during 2023? The consensus is that mortgage rates will gradually decline throughout the year, even if interest rates go up. Some predict that fixed rates could fall below 4 per cent by early 2024.

Will 2024 be a good time to buy a house? ›

Given the current trend of a steady rise in housing prices and limited housing supply, the housing market in 2024 is likely to see modest growth, rather than any substantial increase or decrease.

Are house prices going to drop? ›

As rates normalise, buyers will increasingly recalculate their financial position and house prices will come under pressure. We expect a 10% decline over the next two years, taking them back to where they were in mid-2021.”

What will houses be worth in 2025? ›

Using Zillow's typical home values, we forecasted their potential growth based on current year-over-year change projections. We then compared it to the projected median U.S. home value for 2025 ($481,692.98) to see what cities just miss the mark of affordability.

What will mortgage rates be in August 2023? ›

Most experts expect the base rate to settle around 4% to 4.5% by the end of 2023 and top fixed mortgage deals to fall to just under 4% within 18 months."

Will interest rates go down again in 2024? ›

The average interest rate for the benchmark 30-year fixed mortgage reached 7.08%, as of Monday. However, with the economy expected to cool and possibly dip into a recession, many recent forecasts expect rates to drop to 6% or below in 2024, including a Fannie Mae projection of 5.2%.

What will mortgage rates be at the end of 2023? ›

Freddie Mac: Forecasts the average 30-year mortgage to start at 6.6% in Q1 2023 and end at 6.2% in Q4 2023. Realtor.com economist, Jiayi Xu: “Mortgage rates are likely to move in the 6% to 7% range over the next few weeks, which continues to pose a significant challenge to affordability.”

Will mortgage rates be 6%? ›

Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors (NAR), is forecasting that mortgage rates will drop below 6% in the spring and summer months of 2023. She cites easing inflation and smaller rate hikes by the Federal Reserve as the reasons the drop is likely.

Will mortgage rates go down in the next 5 years? ›

Realtor.com expects mortgage rates to reach 7.1% by the end of 2023, dropping slightly from the projected 7.5% by the year-end. It projected mortgage rates to average 7.4% in 2023, up from the expected 5.5% in 2022.

Where will mortgage rates be in 2024? ›

Currently the median projection of the federal funds rate is 4.4% at the end 2022 and 4.6% by the end of 2023. The median projections decline to 3.9% in 2024, 2.9% in 2025 and 2.5% in the long run.

What will buying a house in 2023 look like? ›

Redfin deputy chief economist Taylor Marr expects about 16% fewer existing home sales in 2023 vs 2022. Marr believes potential buyers are still grappling with affordability, high mortgage rates, high home prices, inflation, and a potential recession. “People will only move if they need to,” Marr says.

Will house prices drop with inflation? ›

Housing is a good asset when inflation is high, partly because the value of a house will rise along with the inflation rate, partly because it is a 'leveraged' asset. If your interest rate doesn't change, the value of the property can go up while your repayments stay the same.

Should I sell my home in 2023? ›

For most homeowners, now will be a better time to sell than later in 2023. That's especially true if you live in a market that saw rapid appreciation in recent years. Your real estate agent can help you understand pricing trends in your area, along with available inventory and demand.

Is it better to have cash or real estate during inflation? ›

Real estate traditionally does well during periods of higher inflation, as the value of a property can increase. This means your landlord can charge you more for rent, which in turn increases their income so it is on pace with the rising inflation.

What are the worst investments during inflation? ›

The worst investment to put money into, during periods of inflation, are long-term, fixed-rate interest-bearing investments. These can include any interest-bearing debt securities that pay fixed rates, but especially those with maturities of 10 years or longer.

Is it smart to buy a house during high inflation? ›

If you buy now, your money might have more buying power. As inflation continues to rise your money buys less. If you act now, then, you might be able to afford more home with your dollars than you would if you wait and inflation continues to rise. During inflationary times, monthly apartment rents tend to rise, too.

What gets cheaper during a recession? ›

Houses tend to get cheaper during a recession due to falling demand. People tend to be wary of making this big purchase during uncertain economic times, so prices fall to entice buyers.

What groups suffer most with rapidly rising prices? ›

The lowest income households are suffering disproportionally from the current inflation increase, with rising energy prices the main culprit.

Does raising interest rates really lower inflation? ›

When inflation is too high, the Federal Reserve typically raises interest rates to slow the economy and bring inflation down. When inflation is too low, the Federal Reserve typically lowers interest rates to stimulate the economy and move inflation higher.

Who benefits the most from inflation? ›

Inflation benefits those with fixed-rate, low-interest mortgages and some stock investors. Individuals and families on a fixed income, holding variable interest rate debt are hurt the most by inflation.

Where do you put money for high interest rates? ›

  • Savings Accounts.
  • High-Yield Savings Accounts.
  • Certificates of Deposit (CDs)
  • Money Market Funds.
  • Money Market Deposit Accounts.
  • Treasury Bills and Notes.
  • Bonds.

What sectors are most affected by rising interest rates? ›

Sectors that are also very vulnerable to the rising rates are broadcasting and media, technology, and telecommunications. Those sectors are very leveraged, and those levels of indebtedness, in combination with the rising interest rate environment, will continue to increase their cost of borrowing.

Why you should buy when interest rates are high? ›

Ultimately, higher interest rates give prospective homebuyers more choices. Higher rates also mean that homes are staying on the market for longer than in previous years, giving buyers the opportunity to negotiate price and reducing the level of competition for any one home.

What is the safest investment right now? ›

Here are the best low-risk investments in March 2023:
  • High-yield savings accounts.
  • Series I savings bonds.
  • Short-term certificates of deposit.
  • Money market funds.
  • Treasury bills, notes, bonds and TIPS.
  • Corporate bonds.
  • Dividend-paying stocks.
  • Preferred stocks.
Mar 1, 2023

Is higher interest rates good for savers? ›

An increase in rate would be good news, as it could mean your savings begin to earn more money than they currently do. If you have cash in savings, you could shop around for a better rate.

What goes up when housing market crashes? ›

“In general, during a housing market crash, more homes become available on the market,” Lippi said. “Additionally, housing prices decline as the number of foreclosures or owners who must sell to survive rises. As a result, buyers can get better deals if they decide to purchase during a recession.

What happens to mortgages when the housing market crashes? ›

Recessions and housing market crashes may cause your house's value to decrease. However, your set mortgage rates won't lower, meaning your monthly payments will be higher than your home's worth. While many may dip into their savings to help pay the steep bills, others may need outside assistance.

How does the housing market affect interest rates? ›

Key Takeaways. When the economy is strong, interest rates tend to rise along with growth. Higher interest rates, however, translate into higher mortgage loan costs. Rising rates make homes more expensive for buyers, thereby reducing the demand for home purchases.

What causes housing interest rates to rise? ›

Mortgage rates and inflation go hand-in-hand. When inflation increases, interest rates increase so they can keep up with the value of the dollar. If inflation decreases, mortgage rates drop. During periods of low inflation, mortgage rates tend to stay the same or slightly fluctuate.

How do you take advantage of a housing crash? ›

If you believe real estate is set for a long-term collapse, a savvy investor may buy long-term put options in brokerage services like Redfin (NASDAQ:RDFN) and Zillow (NASDAQ:Z) and wait for their shares to fall, then sell the put options and reap strong benefits.

Will housing prices drop in the next recession? ›

With mortgage rates continuing to remain high, home prices are predicted to decline in the near term. However, experts do not anticipate the widespread unemployment that characterized the Great Recession and also believes that the recession will be quite brief if it occurs.

Will housing prices go down with recession? ›

Home values tend to fall during a recession. So, if you're searching for a home, you're likely to find: Homeowners who are willing to lower their asking prices Homeowners doing to get out from under their mortgages. Banks selling foreclosed properties.

Is it better to buy when the housing market crashes? ›

Buying a property during a recession has advantages

Auctions may yield a house. To boost the economy, the Fed reduces interest rates during recessions. Banks decrease rates, including mortgage rates. Cheaper mortgage rates mean lower house costs over time.

How much did house prices drop in the recession 2008? ›

Prices across the U.S., which fell 33 percent during the recession, have rebounded and are now up more than 50 percent since hitting the bottom, according to CoreLogic, a global property analytics site.

What is the future of real estate? ›

Tight supply following years of underbuilding, combined with increased demand due to remote work, and US demographics — will continue to be a factor in 2023. It will continue to be a moderate or balanced real estate market in 2023 & 2024.

How high will interest rates go in 2023? ›

Bankrate (opens in new tab) predicts the Federal Funds rate will increase to around 5-5.25 percent in 2023. As a result, savings rates are expected to rise as well, with more high-yield savings accounts predicted to peak at 5.5 APY in the middle of this year, and many already surpass 4%.

Will mortgage rates go down to 3 again? ›

Experts agree that's not the range buyers should bank on. Greg McBride, Chief Financial Analyst at Bankrate, explains: “I think we could be surprised at how much mortgage rates pull back this year. But we're not going back to 3 percent anytime soon, because inflation is not going back to 2 percent anytime soon.”

Will interest rate hikes lower home prices? ›

For the first time in a decade, home prices in Southern California are definitively falling. After 10 years of largely uninterrupted gains, home values have turned negative, the result of rising mortgage rates that have squashed demand and caused sales to plummet.

What happens when interest rates rise? ›

A higher rate means more expensive borrowing costs, which can reduce demand among banks and other financial institutions to borrow money. Those who can't or don't want to afford the higher payments postpone projects that involve financing.


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