> I don’t know why prices are still up though – if interest rates being high was making housing unaffordable, one would expect prices to be down.
This is counterintuitive, but also persistent across high-interest rate environments. I asked my mom what the housing market was like in 1980, when rates went up to ~20%, and she said "Prices were basically stable, but nobody was selling houses." Similarly, if you look at historical data, you'll notice that home prices usually remain flat during recessions but don't really go down. Even in really bad recessions (eg. the Bay Area from 1989-1994, which got hit with the triple whammy of interest rates going up to 10%, a tech bubble bust in the workstation & AI market, and the crash in defense spending after the end of the cold war), you might see at most a 10% decline.
The reason comes from a fundamental asymmetry in the housing market: everybody needs a place to live, but most home sellers do not need money. If they fail to sell, they can take the place off the market and continue living in it, or rent it out, or just leave it vacant in hopes of better market conditions next year. So the negotiating leverage usually lies with sellers in the housing market.
When rates go up, affordability goes down, but sellers are usually unwilling to take a multi-hundred-K$ hit. So they don't. They rent it out, they live in it, or they hold onto it. It's usually worth taking a few thousand dollar hit in property taxes to avoid a $100K hit in home value. Liquidity dries up - instead of prices going down, inventory disappears. We're seeing that now, and the older generation saw it in 1980 and 1990.
To make prices actually go down substantively, you need those forced sales, where owners want/need to get out at any price. This could take the form of a foreclosure/bankruptcy crisis like in 2008, where the owners legally lose possession of the house, and the banks need to sell at any price to avoid bankruptcy themselves. Or it could be rising crime, like what happened to Detroit & the Rust Belt after the 1970s or SF in 2020. But many things that you would think would destroy home prices don't actually - New Orleans did not see a significant decline after Hurricane Katrina in 2005, and Silicon Valley did not see one after the dot-com bust in 2000.
One other thing to note is that when prices in a region decline, it's almost always because nobody wants to live there. This is actually rather intuitive - if rates and affordability go down but people still want to live there nobody will sell, while if people are forced to sell but others still want to live there you will still have competition among bidders and prices will go up. But it means that there's no magic bullet: "affordable" housing means that home prices stay stable while incomes rise, and if you can't get your income to rise, you are just screwed.