We’re in the second stage of the housing market downturn, according to a new Fortune article, which outlines three major elements that could shift during this next phase.

Journalist Lance Lambert dissects the Federal Reserve rate shifts and their impact on mortgage rates. This, he says, pushed the housing market into its current “reset.”

Rick Palacios Jr., head of research at John Burns Real Estate Consulting, summed up the situation: “The longer that [mortgage] rates stay elevated, our view is that housing is going to continue to feel it and have this reset mode. And the affordability resetting mechanism right now that has to happen is on [home] prices.”

According to Lambert:

The first element economists are watching is how far the home price correction is spreading.

Some predicted prices would keep rising. Now they’re falling throughout much of the nation. The extent of the fall is still under debate. But many are now saying home prices will keep declining throughout 2023.

The second is how far beyond housing the current painful environment will spread.

Goldman Sachs researchers released a paper titled “The Housing Downturn: Further to Fall.” This forecasted that U.S. housing GDP will drop by 8.9% in 2022 and another 9.2% in 2023.

If the bank is right, “it will mean the contractions in the U.S. housing market will soon sprawl out into the broader economy,” Lambert says.

The third element is home sellers themselves. Many are just not listing homes any more as they wait out the market.

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