Tuesday’s Case-Shiller U.S. Home Price Index came in well below projections, adding to narratives that housing may be amid a downturn. While most economists and housing experts remain fixated on future changes to the real estate industry, is it possible the U.S. is already in the midst of a housing market crash?

By most accounts, evidence is clear that U.S. housing slowed substantially from its rampant growth period in 2021. Indeed, metrics like home sales and mortgage applications have been down in the dumps for nearly a year. Whether that marks a crash is a matter of perspective.

As per this week’s Case-Shiller Home Price Index, U.S. home prices fell for the sixth consecutive month in December, this time by 0.8%. This represents a 4.4% drop from June 2021’s peak.

The Case-Shiller gauges changes in single-family home prices in 20 of the largest metropolitan areas in the U.S. As such, it holds significance in measuring housing market fluctuations across the country.

While six straight months of falling prices is undoubtedly an ominous sign for a real estate market as historically robust as in the U.S., it’s also hard to defend rumors of a housing market crash with a mere 4.4% peak-to-trough change. In fact, on an annual basis, the median sales price of houses sold is still up 10% from Q4 2022 compared to Q4 2021. This is a far cry away from the 20% price drop experienced during the 2008 financial crisis.

However, that’s not the whole story. While some economists may claim that housing has bottomed out, there remains plenty of runway for housing market conditions to deteriorate further. Conservative estimates forecast housing will shed an additional 5% of its value before year-end. More generous projections are far more devastating.

Falling Home Prices vs. Rising Interest Rates

An interesting dichotomy has been presented as the housing market sorts itself out one way or another. As a function of the Federal Reserve’s interest rate hikes, mortgage rates have climbed to their current, near 7% level. At the same time, for most of the past year, home prices have slowed their roll substantially–in no small part due to the rise in mortgage rates.

It’s a bizarre tug of war where hopeful homebuyers have to make an increasingly confusing decision over whether to jump on homes now at comparably lower prices though likely under the thumb of a brutal mortgage rate, or wait for rates to potentially continue rising, likely pushing prices down even further in the future. And make no mistake; mortgage rates could very well continue climbing. This is especially true given the Fed’s stated likelihood to continue raising rates.

Now, on a broader scale, it may seem silly to compare the highly elevated mortgage rates to the relatively meager reductions in home prices thus far. But there’s more than meets the eye here.

On a regional basis, some areas have already experienced massive losses in real estate value. Indeed, U.S. home prices lost more than $2 trillion in value in the second half of 2022 alone. While some markets, like Miami, have remained relatively strong through the housing downturn, others have faired poorly. Areas like Seattle, San Francisco, and Oakland are already down about 10% from peak to trough.

As such, if you’re a buyer in a region that has experienced a significant loss in real estate value, money saved in the market price may outpace the money lost to higher mortgage rates, especially given that many cases, homeowners will opt to refinance their mortgage under a lower rate anyways at some point in their loan.

Just How Bad Could a Housing Market Crash Get?

At present, there remains one primary reason many economists tend to underestimate the likelihood of an actual housing recession: the supply of homes. The inventory of available homes for sale has long been constrained in the U.S. Because of this, many real estate experts have doubted a sustained drawdown to real estate prices was even possible because of the mismatched supply and demand in the country. While things have improved somewhat in the face of slowed home sales, there remain woefully fewer homes available for sale than people looking to purchase properties. Fortunately (or unfortunately, if you’re trying to sell your house), help is on the way.

According to Nicole Bachaud, Senior Economist at Zillow, an impending wave of newly constructed homes set to hit the market this spring should put even more downward pressure on home prices.

“The backlog of new construction homes continues to emerge into the market just in time for the spring shopping season…There is still a large chunk of new construction homes currently under construction, and when those homes hit the market, especially over the next few months, we will see spring home buyers – those who can afford the higher new construction price tags – having more options and opportunities to break into homeownership,”

The notion of a more balanced housing market is undeniably powerful. A rebound in the supply of homes should theoretically apply substantial downward pressure on home prices. While it will assuredly tempt some hopeful homebuyers back into the market, the entire U.S. housing market could be down substantially by that point.

“The increase in existing home supply, meanwhile, appears to have stalled in December, with inventory of single family homes unchanged at 3.4 months of current sales.” wrote Ian Shepherdson, Chief Economist at Pantheon Macroeconomics. “But we remain confident that inventory will rise again before long, especially as the downward adjustment in prices accelerates.”

U.S. Real Estate in 2023: The Big Picture

Make no mistake: this isn’t 2008. Banks are held to far more stringent lending laws, large swathes of Americans aren’t facing an immediate threat of foreclosure, and musings of a 20% drop in home prices are still more fantasy than reality.

But, for a housing market that has climbed so fast, should home prices fall even 10% this year, it would mark such a staunch reversal of U.S. real estate conditions, so it would be hard not to consider it something of a “crash.”

In that regard, U.S. home prices are inching towards said crash even as we (figuratively) speak. Median home-sale prices fell on an annual basis in February by about 0.6%. This marks the first year-over-year decline in median home-sale prices since 2012. Does this mean we’re in a housing market crash? Probably not. Humble beginnings of one? A distinct possibility.

“We estimate that single-family home prices have fallen 5.4% from their recent peak in May 2022, but they still need to fall by a further 15% or so before they return to their long-run average, compared to disposable incomes,” Shepherdson said.

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.