30-year mortgage rates have returned to the 7% range this week, reigniting concerns of an impending housing market crash. Indeed, it seems speculation of a reduced or delayed rate-cut cycle has weighed on mortgage rates after a notable period of cooling. This point is reinforced by last Friday’s Producer Price Index (PPI) report, which showed hotter-than-expected wholesale prices.

“Mortgage rates moved back above 7 percent last week following news that inflation picked up in January, dimming hopes of a near term rate cut,” noted Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA).

At 7.06% on average, mortgage rates are at their “highest level since early December,” according to CNBC. Previously, the 30-year was trending around 6.87%.

The rise in mortgage rates has already weighed on hopeful homebuyers. Mortgage demand sunk 10.6% compared to the week prior, per the MBA.

“Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market,” Fratantoni said.

Rising Mortgage Rates Contribute to Housing Affordability Crisis

With mortgage rates back on the offensive, economists are abuzz over the potential of a housing market crash. Indeed, it appears for the first time in years, conditions may favor a notable decline in home prices.

With mortgage rates trending around historical highs and home prices still largely unchanged over the past year, it’s an admittedly bad time to purchase a home in the United States.

The National Association of Realtors’ (NAR) Housing Affordability Index came in at 101.9 in December 2023, when mortgage rates were just 6.9%. For context, a value of 100 means a median-income family has exactly enough income to qualify for a mortgage on a median-priced piece of real estate, assuming a 20% down payment. This has some economists convinced of a housing affordability crisis taking root in the country.

What Do Rising Mortgage Rates Mean for a Housing Market Crash?

Economists have speculated that home prices could ease in 2024, fueled by an influx of homes for sale. Though, this notion is driven by the assumption that mortgage rates would ease this year, alongside the benchmark interest rate.

The idea is that many homeowners, tied to pandemic-era mortgage rates, would quickly choose to sell should mortgage rates fall sufficiently. This would unleash a wave of homes for sale, easing some of the supply imbalances in the real estate market, allowing home prices to finally make meaningful progress downwards.

As noted, however, this all rests on the assumption that mortgage rates will fall. Heading to the end of the first quarter, economists are largely unsure as to the path for interest rates this year. While the Federal Reserve has hinted at four or more rate cuts this year, inflation’s recent stubbornness has some convinced that the central bank may take a more methodical approach to rate cuts this year. Some believe the Fed may not even cut rates the full four times.

“There are compelling reasons to begin the process of dialing back the degree of monetary restraint by mid-year,” Deutsche Bank economists wrote in mid-February. “However, if this progress is not realized, and the economy continues on a robust course […] that could lead to no rate cuts this year.”

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.