US Housing Market Faces Potential 19.5% Correction as Rates Rise

The US housing market is facing a potential 19.5% correction, according to Dallas Federal Reserve economists.[0] The economists warn that further rate hikes from the Federal Reserve could make a crash even worse, as the housing market remains vulnerable to global economic spillover effects.

The US housing market experienced a “pandemic boom” in 2020, leading to a rapid deterioration in affordability. Goldman Sachs projects that home prices will fall 6.1% in 2023 as rates continue to tick higher.[1] This is in comparison to the 26% peak-to-trough home price crash seen between 2007 and 2012.[2]

According to economists from the Dallas Federal Reserve, home prices in the United States would need to decrease by 19.5% in order to bring the country in line with its housing fundamentals.[2] This could be triggered by tighter-than-expected monetary policy.

The Fed’s actions continue to affect the housing market, with mortgage rates going from 3.78% in 2017 to 4.94% in 2018.[3] The panel expects mortgage rates to trend downward after the first quarter, with 63% predicting that rates for 30-year fixed loans will be highest in Q1 of 2023.[4]

Goldman Sachs analysts anticipate major decreases in house prices in four US cities by the end of 2021, which experienced housing booms during the COVID-19 pandemic.[5] Austin, Seattle, Phoenix and San Francisco will all experience double-digit price declines as an increase of available homes surpasses demand.[6]

Dallas Fed economists argue that if the observed price-to-rent ratio grows at an explosive rate relative to its fundamental-based ratio estimated with long-term interest rate and rent growth data, then it’s worth considering whether the sector is in a bubble.[7]

Homeowners who secured lower mortgage rates during the recent Pandemic Housing Boom (or previous years, due to the long-term low rates) are preferring to remain in their homes, rather than selling and having to acquire a loan with rates nearing the 7.37% peak. Most of these homeowners have rates of 3% or less.[5] This, combined with the Fed’s actions, is making it difficult for potential buyers to take action, particularly for repeat buyers with existing mortgages with rates less than half of current rates.[8]

In conclusion, the US housing market is facing a potential 19.5% correction and further rate hikes from the central bank could make a crash even worse.

0. “The Fed’s own economists are warning of a 19.5% housing correction” Business Insider, 1 Mar. 2023,

1. “US home prices could tumble nearly 20% and Fed economists warn further rate hikes risk an even worse housing c” Business Insider India, 28 Feb. 2023,

2. “Dallas Fed: Housing market is only passing through a modest correction, but ‘tighter than expected’ monetary policy …” Yahoo Life, 2 Mar. 2023,

3. “Everybody Wants the Answer to This Question” Scotsman Guide News, 1 Mar. 2023,

4. “Expert panel expects home prices will grow at a steady pace starting in 2024 – Zillow Gr (NASDAQ:Z), Zill” Benzinga, 2 Mar. 2023,

5. “‘I can’t afford to sell because I don’t want to lose that rate’: 3% mortgage rates will loom large over the U.S. housing market for years to come” Yahoo Life, 2 Mar. 2023,

6. “Austin, Seattle, Phoenix and San Francisco will see double-digit drops in home prices” Daily Mail, 27 Feb. 2023,

7. “Threat of global housing slide looms amid rising rates” Federal Reserve Bank of Dallas, 28 Feb. 2023,

8. “Home Prices Will ‘Bottom Out’ in 2023, According to Experts” AOL, 3 Mar. 2023,