Why Home Prices Have Not Crashed (And What Would Actually Cause Them To)

The standard economic model suggests that when the cost of buying rises sharply — through higher mortgage rates — demand should fall, excess inventory should accumulate, and prices should correct. That model has not played out as expected in most American housing markets since 2022. Understanding why requires examining the structural features that make housing markets different from most asset classes.

The lock-in effect is the most powerful force holding prices up. Homeowners who refinanced at 2–3% rates during 2020–2021 are sitting on mortgages that represent among the cheapest long-term capital available anywhere in the economy. Selling means surrendering that rate and taking on a new mortgage at 6.5–7%, which effectively doubles the monthly carrying cost on a comparable home.

Housing is consumed by its owners, not just held as an investment. A stockholder can sell shares in a volatile market and hold cash. A homeowner who sells must live somewhere — and renting a comparable home often costs as much as owning in many markets once you factor in that rent does not build equity. This consumption demand creates a floor under prices that pure investment markets do not have.