This is of course what we see now. Despite favorable demographics and tight inventory levels, affordability pressure — skyrocketing mortgage rates coupled with bubbly home prices — is starting to drive home prices down. In fact, this week we learned that home prices in the United States, as measured by the U.S. national Case-Shiller house price index posted its first month-over-month decline since 2012.

Across the country, the U.S. housing market — whose mortgage rates hit 3% during the pandemic housing boom — is struggling to balance out against mortgage rates of 6%. But we are still in the early innings. And the ongoing house price correction still hasn’t affected all markets: Between May and August, home values ​​in San Jose fell 10.6%, while they rose 2% in Orlando. .

To better understand where the U.S. housing slowdown will take us next — and whether the house price correction will soon hit more markets —Fortune contacted Zonda’s chief economist, Ali Wolf. When she’s not traveling across the country talking to home builders, she’s advising the White House on housing matters.

Below is FortuneQ&A with Ali Wolf.

Fortune: As the data comes in, it’s pretty clear that home prices are falling in many markets across the country. In some places it’s pretty neat. Do you expect the decline in house prices to continue in 2023?

Wolf: We haven’t seen home prices come down universally across the country, but there are some markets where home prices have started to come down and we expect that to happen in more metros. across the country in the coming months. House price corrections can be expected in 2023 as long as interest rates remain high and consumer demand remains sluggish.

What types of markets are the most vulnerable?

The most vulnerable markets include: 1) Those where home prices have risen sharply due to hybrid working, such as Boise, Las Vegas and Denver. 2) Markets that don’t have a local jobs base to sustain rising house prices (in other words, markets where house prices and incomes are out of whack), such as Nashville and parts of Florida. 3) Markets where housing inventory has grown rapidly, such as Phoenix and Austin.

Why are markets like Austin, Boise and Phoenix changing so quickly?

The housing booms seen in markets like Austin, Boise and Phoenix were among the nation’s earliest and sharpest. Historically low mortgage interest rates combined with lifestyle changes caused by the pandemic, including working from home and increased moving, have led to a dramatic increase in demand for housing and supply has not increased. couldn’t keep up.

Those moving from places like California and Washington have been able to leverage the equity in a home from a sale in the higher-cost market and invest those funds into buying a new home in those markets. relatively more affordable. Relocation buyers have found these markets to be very affordable compared to their place of departure, to the detriment of local buyers.

There was a belief in these markets that the imbalance of supply and demand was so bad and so old that the markets could never be overheated. Buyers, frantic to get a house, were ready to pay almost any price to get a house. Investors and pinball machines saw these markets as ripe for opportunity. This mentality has contributed to the massive rise in house prices.

However, as interest rates rose in early 2022, reality began to set in. Home price appreciation was slowing and not all homes listed were selling above the current price within a day of going live. Housing demand slowed as some of the new homes under construction began to come online, and inventory of existing homes rose rapidly as sellers tried to time what they thought was the top of the market.

How do you think mortgage rates near 7% will impact the housing market? We were already correcting with mortgage rates at 5%. Should we expect an intensification of things with rates of 6.5 to 7%?

Housing affordability depends on many factors, but the two key factors are house prices and mortgage rates. We have just lived through a unique period in American history when rising house prices were offset by historically low interest rates. Inexpensive financing helped control the monthly mortgage payment.

However, interest rates have risen dramatically since the start of the year, putting pressure on housing affordability. Buyers were already starting to pull out of the market when interest rates rose from 3% to 4% and every 100 basis point increase continued to deprive millions of Americans of home ownership.

If mortgage rates remain high for an extended period, we expect housing demand to remain weak, new home construction to be limited and home prices to adjust lower across the country.

Want to stay up to date on housing correction? Follow me on Twitter at @NewsLambert.