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Fact Checked by Experts

Will the Florida Housing Market Crash in 2023?

The potential housing market downturn in 2023 is a cause for concern among many Floridians.

When a market experiences a downturn, commonly referred to as a housing bubble burst, it can have far-reaching consequences, including an overall economic downturn and increased instability. These factors make it particularly challenging for individuals in Florida to discover their ideal home.

Experts in the field of economics are cautious about labeling the current market in Florida as a housing bubble. Typically, a housing bubble exhibits certain characteristics, such as:

  • Rapid escalation of home prices exceeding income growth and inflation rates.

  • Limited availability of affordable housing options.

  • Elevated prevalence of subprime mortgages and predatory lending practices.

  • High mortgage interest rates.

  • Scarce supply of homes in general.

By considering these indicators, economists can gauge the stability of the housing market in Florida and determine the likelihood of a potential market crash.

Will the Market Crash in 2023?

Predicting the occurrence of the next housing crash in Florida proves to be a challenging task due to the various combinations of features the market can display without necessarily resulting in a crash.

While these characteristics, when combined, typically indicate a less healthy market, economists often struggle to identify a bubble until it has already burst.

Although several of these features are evident in the current Florida housing market, experts are hesitant to label it as a housing bubble since not all the typical indicators are present. Consequently, determining the market's true state requires time and observation.

Based on our research, it is unlikely that the housing market in Florida will experience a crash in 2023. However, it is important to remain attentive to any shifts and trends that may emerge in the coming months to gain a more comprehensive understanding of the market's stability.

Rising Home Prices

In Florida, the housing market often adheres to the fundamental principles of supply and demand when it comes to inventory.

However, the pricing trends for homes can be influenced by federal regulations and interventions, which can introduce complexities into the housing market outlook.

During the initial stages of the COVID-19 pandemic, federal regulations were implemented to lower mortgage rates with the intention of alleviating concerns regarding a housing bubble.

While this measure was aimed at increasing affordability, it had several long-term consequences:

  • It created a surge in demand for homes while inventory levels remained low.

  • This increased demand, in turn, led to a rise in home prices.

Due to the continuous growth in prices and demand despite limited inventory, the Federal Reserve intervened by raising interest rates to stabilize the market. By April 2022, home prices had increased by 14% compared to the previous year.

It is crucial to note that the rising home prices in 2022 should not be solely relied upon as an indicator of an impending housing bubble burst in 2023.

The housing market's pricing trends do not always conform to basic economic rules, and various factors can contribute to price fluctuations.

Therefore, it is essential to consider a broader range of indicators and factors when assessing the likelihood of a housing bubble in Florida.

Low Affordable Housing Inventory

The most recent housing affordability index report reveals a concerning decline in affordability, with a significant 21% drop observed between 2020 and 2021.

This decline represents the most substantial year-over-year decrease since 2013. Moreover, when compared to 2013, affordability in 2021 was 20% lower.

The affordable housing market in Florida is characterized by intense competition. Various parties, including home flippers, actively seek out lucrative deals, further exacerbating the situation and pricing out low-income Americans who are searching for suitable housing options.

As home prices increase, the number of homes available for sale tends to rise as well. This dynamic creates a buyer's market for high-end properties, where buyers have more bargaining power, while simultaneously transforming it into a seller's market for affordable homes, where sellers have the advantage.

The key takeaway from this situation is that there is a severe shortage of affordable housing inventory across the United States, including Florida, which fails to meet the high demand.

Consequently, many individuals are compelled to opt for renting, often facing higher monthly payments compared to mortgage payments for similar properties.

Up and Down Arrows and House on Seesaw

Subprime Mortgages and Predatory Lending

Subprime mortgages and predatory lending are terms used to describe unethical practices wherein lenders provide loans to individuals who do not have the financial means to afford them.

Predatory lending, in particular, is considered illegal. However, determining its prevalence on a large enough scale to significantly influence the housing market outlook can be challenging.

A crucial point to consider is that obtaining mortgages has become increasingly challenging.

While this may be discouraging for those seeking a loan to purchase a home, it is also a key factor contributing to economists' argument that the housing market is not currently in a bubble. The tightening of mortgage qualification criteria helps prevent risky lending practices.

However, it is important to note that if the difficulty in obtaining mortgages leads to a rise in subprime mortgages—loans provided to borrowers with poor credit history—it could potentially become a risk factor for a housing bubble.

The key takeaway here is that the housing market's current state is influenced by the growing challenges associated with mortgage qualification.

While this factor supports the argument against a housing bubble, the increased prevalence of subprime mortgages could pose a risk and necessitate close monitoring of the market.

High Mortgage Rates

Mortgage rates are currently on the rise due to various economic factors. The Federal Reserve plays a pivotal role in setting national interest rates and regulating the value of the U.S. dollar.

As of August 2022, the Federal Reserve has been raising interest rates in an effort to combat inflation. However, it's important to note that when Federal Reserve rates increase, mortgage rates also tend to rise.

Between March 2021 and 2022, there was a notable increase in mortgage rates.

Specifically, 15-year fixed mortgage rates experienced a 44% increase, while 30-year conventional mortgage rates rose by 48% between April 2021 and 2022. These figures represent the most significant year-over-year jumps in rates.

It remains crucial to monitor whether rates will decrease as the year progresses. Nevertheless, it is worth noting that both rates still remain significantly lower than those observed during the 2008 financial crisis.

The key takeaway here is that the rise in mortgage rates serves as an indicator of a housing bubble. However, economists believe that the increasing mortgage rates will contribute to a decline in home prices by the end of 2022.

This reduction in prices is expected to mitigate the risk of a market crash, as it helps restore balance to the housing market.

Low Housing Inventory

The combination of low housing inventory and high mortgage rates and prices leads to an intense demand for homes. However, there is a limit to how high prices can rise before potential buyers are unable to afford homes altogether.

At this point, prices typically start to drop, signaling the bursting of the housing bubble and potentially leading to a market crash.

In a positive development, new home inventory has shown a notable increase of 48% since the beginning of 2022. This rise in inventory suggests that the housing market may not be heading towards a crash in the near future.

The key takeaway here is that housing inventory has been consistently trending upward throughout 2022. This increase in inventory brings hope as it has the potential to alleviate high prices and reduce the risk of a housing market crash in 2023.

The availability of more homes for sale provides buyers with a broader range of options and the opportunity for prices to stabilize or decrease, promoting a healthier and more sustainable housing market.

Housing Crash Predictions

The housing market in the second half of 2023 is anticipated to face significant challenges primarily related to high home prices and the difficulty in qualifying for mortgages.

If inflation continues, it is likely that the Federal Reserve will increase interest rates in an attempt to combat it. Such actions by the Federal Reserve would cause mortgage rates to rise as well.

If this occurs alongside other risk factors, such as a low housing inventory, it could potentially contribute to a housing market crash.

When assessing the likelihood of a housing market crash in 2023, it is crucial to consider several key factors that interact with one another:

  • A significant drop in housing inventory.

  • A substantial increase in home prices.

  • Accelerated mortgage rates.

  • Instances of predatory lending.

It is important to note that no single indicator can reliably predict a market crash. Instead, it is necessary to view these factors as interconnected economic relationships that collectively influence the likelihood of a crash.

By evaluating the interplay between these factors, one can gain a better understanding of the potential risks or stability of the housing market in 2023.

Whether the housing market experiences a crash in 2023 or not, MakeFloridaYourHome is here to provide you with the necessary support.

We offer a range of resources for both buyers and sellers, ensuring that you have the information and assistance you need.

If you find yourself contemplating whether it's the right time to buy or sell your home, don't hesitate to reach out to us.

Our team is ready to help you explore your options and guide you through the process. Contact us today and let us assist you in making informed decisions regarding your real estate journey.

With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.

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