3 in 4 Millennials Think Home Prices Could Crash in 2023. Here's Why They're Wrong

Unfortunately, there's a good chance home prices will remain high this year.

There's a reason aspiring buyers have struggled to purchase homes over the past few years. Since mid-2020, housing inventory has been very limited. And any time you have a situation where there's not enough supply of a given commodity to meet buyer demand, its price has a tendency to rise.

Now that said, buyer demand has been waning in recent months, largely due to an uptick in mortgage rates. Borrowing rates for mortgage loans rose sharply in 2022, and while they've softened in recent weeks, they're still notably high. That's led some buyers to pull out of the housing market.

In light of this, it's not all that surprising to learn that about 75% of millennials think home prices could crash in 2023, according to a recent survey by Real Estate Witch. But while a steep decline in home prices might benefit sellers in a big way, it's also pretty unlikely to happen.

It's all about inventory

Low inventory and affordable mortgage rates drove buyer demand upward in mid-2020, and that demand has remained fairly strong. In recent months, buyers haven't been clamoring for homes quite as much as they were in 2020 and 2021, when borrowing rates were low. But demand is still reasonably solid. And home prices are unlikely to plunge in 2023 for one big reason -- there's still a glaring lack of housing supply. 

As of the end of December, there were an estimated 970,000 housing units available for sale, according to the National Association of Realtors (NAR). That represents a mere 2.9-month supply of available homes. 

For context, it typically takes a minimum of a four-month supply of homes to fully meet buyer demand. And that's really the minimum. In fact, it often takes a solid six-month supply of homes to create an equalized housing market -- one that doesn't favor sellers or buyers over the other. 

Since we're so far away from having a solid level of housing inventory, home prices are unlikely to crash in the coming year. They might drop, but even if they do, that doesn't mean sellers won't still be able to walk away with profits. 

In fact, the median existing-home sale price in December was $366,900, as per the NAR. That's a 2.3% increase from a year prior. So even though buyers have been pulling out of the market, demand hasn't declined enough to drive home prices downward. 

Buyers should gear up for another tough year

Unfortunately, between higher mortgage rates and elevated property prices, 2023 could prove to be a challenging year for home buyers. Those with financial constraints may want to consider postponing their house hunting until real estate inventory picks up. Once that happens, it could drive home prices downward. But we're really a long way from there at this point in time.

Of course, one wild card factor this year will be mortgage rates. There's a chance rates will start to come down in the coming months, though it's premature to say that will happen. But if rates start to drop, that could drive an increase in buyer demand. And that would probably take a decline in home prices off the table.