What Happens to My Mortgage if the Housing Market Crashes?

Published on February 11th, 2023

The housing market is one of the biggest parts of the economy, and it's closely tied to so many other sectors. If you own a home or are thinking about buying one, there are many factors that you should monitor closely in regard to the overall economy and how it impacts a potential housing market crash.

Many homeowners wonder what will happen to their mortgage and the mortgage interest rates during an economic downturn or market crash and how a market crash affects homeowners.



Throughout this article, we will discuss everything you need to know about a protentional housing crash and how it will affect your mortgage and mortgage payments.

What Happens if the Housing Market Crashes and You have a Mortgage?

The housing market is a big part of our economy, so it can be affected by many things. For example, if there are more people who want houses than there are houses available, this will cause prices to increase; but if there are fewer people who want houses than there are houses available, this will cause prices to decrease.

Average Interest Rates During a Housing Market Bubble

The same thing can happen with interest rates. Suppose interest rates rise (meaning that banks will lend money at higher rates). In that case, it becomes more expensive for homeowners with variable-rate mortgages and may force them out of their homes through foreclosure as they struggle with their monthly payments. 

Still, if interest rates fall (meaning that banks will lend money at lower rates), then homeowners with fixed-rate mortgages might be able to refinance into cheaper loans.



What happens with your mortgage interest rates depends on if you have a fixed-rate mortgage or an adjusted interest rate. Mortgage interest rates tend to climb when property values decrease, which can greatly affect real estate markets. With rising interest rates and high borrowing costs affecting home sales and home values for the foreseeable future, many are left wondering why.

When interest rates are high, people tend to buy less expensive homes; when they're low, buyers tend to move up into pricier properties. But there are also other factors at play here--for example, if you want a new car but don't have enough money saved up for it yet (or even if you do), then maybe buying a house isn't going to happen until later in life when things have stabilized financially.

Another major factor in determining housing prices is supply and demand--the more people want something relative to how much of that thing there is available for purchase or rent (especially in urban areas), the higher prices will go up until equilibrium has been achieved between supply/demand levels. Of course, other economic factors will contribute to the housing market, including:

• Property prices
• Government policies
• The Federal Reserve
• Consumer confidence
• Consumer debt
• Job losses
• Stock market
• Government programs
• Lending standards

These reasons and so many more contribute to why home prices might be lower when interest rates continue to rise.

The housing market is volatile, but it's always been volatile and continues to rebound as the market shifts. When considering buying a home, the most important thing to do is research and ensure you understand how the market works before committing yourself financially. While we won't be seeing a great recession soon, more homeowners might face short sales, high unemployment rates, and rising prices.



If you are looking for information about what happens if the housing market crashes and the real estate market in general, check out our other articles on this topic!