20-Year High Mortgage Rates Won’t Crash the Housing Market—Here’s Why

Mortgage rates briefly surged to a 20-year high last week, and as more prospective buyers are priced out of home purchases, economists warn that the housing market may be headed full speed ahead toward a recession. While a sudden slowdown could cause price drops of 10% to 15% nationally, strong employment gains and equity cushions will prevent a crash similar to the 2010 housing bubble and bust, Realtor.com reports.

Though home prices appear to have peaked after reaching record levels, more families will be priced out of the housing market in the months ahead as mortgage rates creep toward 7% and rental costs climb to new highs.

While risks of a housing and economic downturn have been building as the Federal Reserve has sharply raised interest rates to tame inflation near a four-decade high, its efforts have been complicated by stubbornly high shelter costs.

Vanden Houten thinks a housing crash “is improbable,” but said a low probability risk of a 15% fall in home prices would wipe out $6.2 trillion of home equity, or more than two-thirds of the $9.5 trillion in housing wealth gained during the pandemic.

On the bright side, however, relatively steady mortgage debt levels over the past decade would mean U.S. households still retain about a 65% equity stake in their real estate under that scenario.

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