As the Fed continues hiking its own rates to fight inflation, mortgage rates are expected to follow a similar trajectory.

After a decade of a strong seller’s market, punctuated by the pandemic housing explosion, higher mortgage rates finally began reining in runaway competition.

In winter 2022, home shoppers have more opportunities and less competition, free to insist on inspections and other contingencies without worrying about a bidding war.

At the same time, many in the country are worried about impending recession, as the Fed seems set on continuing to raise rates until inflation is brought under control. Many prime indicators point to a nationwide downturn.

However, those hoping for the high home price bubble to pop – as it did prior to the Great Recession a decade ago – will probably be disappointed. Even if there is another slowdown, most experts believe there’s little chance of a housing price crash.

In the aftermath of the Great Recession, lending laws were tightened so only the most qualified borrowers could secure a mortgage. As a result, the housing industry is on more solid footing.

What's more, the The Fed hikes – aimed in part at cooling the overheated labor market – have been slow to affect jobs. Nonfarm payrolls surged by 261,000 in October. 

Jobs will be lost in a recession, to be sure. But today’s homeowners also have a record amount of equity. And with home prices expected to remain high, fewer folks who lose jobs will find themselves underwater on their mortgage. That should make it easier to sell if need be.

Even as supply and demand come into better balance, there still aren’t enough homes to go around. As the massive Millennial Generation continues to age into its prime-homebuying years, the prospect of a fixed mortgage payment – no matter how high - looks more appealing. And with Generation Z waiting in the wings, demand isn’t likely to drop off anytime soon. Further choking supply is the reticence of current homeowners to sell. To buy a new home, they would have to give up pretty cushy interest rates.

As a result the National Association of Realtors (NAR) predicts home-price appreciation will slow down to 5% by the end of this year, but prices may continue to rise.

Many first-time homebuyers continue to be priced out of the market entirely.

One glimmer of hope for housing comes in the form of the government’s latest inflation report. The Bureau of Labor Statistics said annual inflation fell to 7.7% in October, down from 8.2% in September.

If inflation slows enough, the Fed may stop raising its rates, and mortgage rates should come down.