Suze Orman Doesn't Expect Home Prices to Plunge. Here's Why

Sellers shouldn't panic, and buyers shouldn't expect any near-term discounts.

There's a reason buyers today are struggling to purchase homes. Not only have mortgage rates risen substantially since the start of the year, but housing prices are through the roof. We can blame a big lack of inventory for that.

But some housing market experts are cautioning that today's sky-high home prices aren't sustainable. And they're most likely correct.

But does that mean we're headed for a housing market crash? Not if you ask Suze Orman. On a recent podcast, she said buyers and sellers alike should not expect home prices to plunge. Here's why.

It's all about supply and demand

It's easy to see why some people are worried about home prices plummeting. Mortgage rates are likely to keep rising as the Federal Reserve moves forward with interest rate hikes in an effort to slow the pace of inflation. That could drive buyers out of the market, thereby leading to a dip in demand.

Recession fears could produce a similar outcome, and an actual recession could too. But the reality is that home prices aren't likely to spiral downward because there's still a lot of demand for homes, and inventory is extremely low.

As of the end of May, the inventory of unsold homes sat at 1.16 million units, according to the National Association of Realtors. That represents a 2.6-month supply of available properties for sale. But it takes at least a 4-month supply of listings for a reasonably equalized housing market -- one where neither sellers nor buyers have a clear upper hand. And right now, we're nowhere close to reaching that mark.

That's why homeowners today shouldn't panic about a housing market crash. And also, prospective buyers shouldn't anticipate steep discounts on home purchases in the near term.

While we could see home values start to drop gradually as real estate inventory gets added and some buyers are pushed out of the market due to higher borrowing costs, right now, demand is still strong overall relative to the supply. And that alone should be enough to prevent a housing market crash.

Coping with sky-high home prices

Anyone seeking to purchase a home today is going to pay a lot more money than usual and get stuck with a higher interest rate on a mortgage than what would've been available a year ago. There's really no getting around that.

The housing market could gradually cool down in the course of the next year. But there's a world of difference between a cool down and a crash. In the former scenario, we're looking at homes returning to their typical values, and in the latter, we're talking about a potential crisis. That's just not very likely given the state of the market.

Of course, the bad news for buyers is that major discounts on home purchases aren't very likely in the near term. But at this point, buyers don't need discounts so much as reasonable asking prices. If those come down the pike, it's something buyers will no doubt celebrate.