The cost to build a new home is soaring due to inflation and labor shortages. This "replacement cost" acts as a price floor for existing homes. This mirrors the 1970s, when home values tripled even as mortgage rates doubled, suggesting that long-term fixed-rate debt on property is a powerful inflation hedge.

High mortgage rates are crushing affordability and capping any potential upside in housing activity. However, the market has stabilized at a 40-year low in turnover, suggesting a baseline of activity from people who must move (e.g., job relocation, family changes) regardless of the challenging rate environment. This creates a market that is stuck in neutral.

As mortgage rates fall, more homeowners will list their properties, increasing inventory. This rise in supply will happen concurrently with the rise in demand from improved affordability. This dynamic will prevent a surge in home prices, keeping annual appreciation capped at a modest 2% for the upcoming year.

Existing homeowners have resisted price cuts due to low mortgage rates, but they will eventually face the same market realities builders are addressing now. This delayed "price discovery" is expected to cause a 1-2% nationwide decline in resale home prices in 2026.

Millions of homeowners with low, pre-2022 mortgage rates are "squatting" in homes that may no longer fit their needs. They refuse to sell and take on a new 7%+ mortgage, effectively freezing housing supply and creating a market held hostage by interest rate policy.

The historically low number of home sales isn't just about buyer affordability. A major factor is seller reluctance; existing homeowners are "locked in" by their low-rate mortgages and find it financially unattractive to sell and buy a new property at current higher rates.

While lower mortgage rates typically boost buyer demand, they also reduce the 'lock-in effect' for existing homeowners. This brings more supply to the market, which will likely offset the increased demand and keep home price growth minimal and 'range-bound'.

The US housing market is frozen not by insolvency but because homeowners are locked into low mortgage rates. With transactions at crisis-era lows but driven by non-discretionary events like death and divorce, pent-up demand creates a "coiled spring" scenario for when rates ease.

Jason Oppenheim contends that today's housing debate is misdiagnosed. The core issue is high interest rates impacting purchase power. He argues that when analyzing rents, the percentage of income required for a comparable unit has remained stable for decades.