The Australian finished second in his final grand prix at Interlagos at the end of last month and will move to sportscars on a long-term deal with Porsche in 2014.
But Horner has no doubts the 37-year-old could have extended his career in grand prix racing should he have wanted to do so.
"If he had chosen to continue, for sure," Horner said.
"He is still running at a level that is extremely high.
"The problem is that Mark fell out of love with Formula 1 and is ready for a new challenge in his life.
"He is excited about that challenge and the timing is right for him to move onto pastures new."
Horner also suspects Webber is under-rated because of unfavourable comparisons with long-time team-mate Sebastian Vettel.
The German won 38 grands prix during his five seasons alongside Webber at Red Bull compared to Webber's nine.
"People have undervalued how good Sebastian is, therefore to go up against him week-in, week-out is extremely difficult and it's only in the fullness of time that even Mark will recognise just how good Sebastian is and has been," said Horner.
"That puts into perspective his own performance.
"Mark Webber is very fine racing driver. He had a reputation as a one-lap specialist in the early days of his career and it's only the level that Sebastian has been operating at consistently that has put a different perspective on things for Mark.
"He has driven some fantastic races and it has just been unlucky for him that Sebastian came onto the scene during his career. Without Sebastian, he was potentially a world champion."
Horner also paid tribute to Webber's significant role in Red Bull's emergence as the dominant force in F1.
"He has played an important role in the team in terms of what he has contributed to development of the car, to the constructors' points that he's scored and the nine grand prix victories he has achieved," he said.
"The four constructors' championships wouldn't have been possible without him. He has played a key role."