America’s Housing Trap—Can’t Sell, Can’t Stay, Can’t Win

When Home Prices Go Up and Foreclosures Do Too

Last month, I wrote about something interesting: Google searches for “help with mortgage” just hit their highest level in 16 years—higher than the COVID spike and even higher than the 2008–09 peak.

And it makes sense. As I noted in that piece, distress signals are everywhere. Household debt just hit a record $18.6 trillion, and more and more Americans are feeling the strain.

With that kind of stress building, you’d be forgiven for assuming home prices must be cooling off by now. Right?

Wrong.

The latest data shows the median sale price of a home in the U.S. has climbed to $440,387—up 1.4% over the past year.

Well, that’s kind of strange. But you know what else is? The rise in foreclosures. In fact, foreclosures have now been rising for eight straight months—up 20% year-over-year.

That’s not supposed to happen.

In a normal market, when home prices rise, foreclosures fall. Why? Because homeowners build equity. And if they run into financial trouble, they can usually sell the house, pay off the mortgage, and walk away with cash. There’s no reason to go through foreclosure when you have equity.

But that’s not what’s happening now.

Homeowners Are Stuck

This unusual combination—rising prices and rising foreclosures—makes one thing clear: the financial strain is so severe that even a rising market can’t stop households from slipping behind.

This is a cash-flow problem, plain and simple.

These homeowners aren’t underwater. Many could sell tomorrow if they wanted to. But selling means giving up the one thing keeping them afloat: their ultra-low mortgage rate.

Look at the numbers. 21% of mortgage holders are locked in below 3%. Another 33% are between 3% and 4%. Combined, 72% are sitting at 5% or below.

Today’s 30-year mortgage rate? About 6.3%.

Do the math. If you’re sitting on a 3% mortgage and you sell, your monthly payment on a comparable home jumps by hundreds of dollars—overnight.

So homeowners stay put.

But here’s the thing… staying put doesn’t make everything else cheaper. You still have to pay for insurance, utilities, groceries, childcare—the everyday stuff that persistent inflation has made a lot more expensive. And when the monthly math stops working, people turn to the only option they have left: tapping their home equity.

As I pointed out last month, this has become a troubling trend. Home equity lines of credit—basically borrowing against your house—have now risen for eight straight quarters. That’s people dipping into their home value just to access cash.

In Q2 alone, homeowners pulled out $52 billion through cash-outs and second mortgages—the largest quarterly withdrawal in three years.

If that’s not a flashing red light of financial strain, I don’t know what is.

Think about what that means. These aren’t people without options. They have equity. They could sell. But they’re so trapped by the lock-in effect—so squeezed by inflation—that they’d rather burn through their equity cushion than give up their low mortgage rate.

It buys time, sure. But it sure as hell doesn’t solve anything. And when that buffer erodes across millions of households, the pressure shows up exactly where you’d expect: higher foreclosure rates.

Why This Pushes the Fed Back Toward the Printing Press

At the end of the day, this whole situation puts the Federal Reserve in a bit of a bind.

Remember, the broader economy is already weakening. The job market is deteriorating. Consumer spending is slowing. Delinquencies are rising across credit cards, auto loans—you name it. Corporate earnings look shaky. And now, on top of all that, housing is flashing some of the same early warning signs we saw in 2008.

The Fed sees all this. They know what’s coming.

They’ve already cut rates twice this year. But whether they cut again next month—which now looks less certain—doesn’t really matter. Because rate cuts won’t fix any of this.

The structural problems don’t go away with lower rates. The housing shortage persists. The lock-in effect remains. Household budgets don’t magically heal because the Fed shaves a quarter point off its target rate.

And mortgage rates don’t even follow the Fed Funds Rate in the first place—which is the only rate the Fed directly controls. They track the 10-year Treasury, which is still sitting above 4.3%. And that’s why—just like I noted earlier—30-year mortgage rates are still stuck around 6.3%, despite the Fed’s recent cuts.

The Fed can’t control those yields. The bond market does—driven by trillion-dollar deficits, weak foreign demand for Treasuries, and endless new debt issuance flooding the system.

So whether the Fed cuts next month or not makes little difference. Rate cuts won’t unfreeze the housing market. They won’t restore affordability. And they definitely won’t ease the cash-flow pressure that’s crushing middle-class families.

There’s only one tool left in the box: the money printer.

Regards,

Lau Vegys

P.S. The Fed’s inevitable return to the printing press is exactly why so much of our Crisis Investing portfolio is positioned in carefully chosen precious-metals stocks—many of which Doug himself owns. The latest issue focuses on silver, which finally broke above its 2011 all-time high (gold did that five years ago). We highlighted an early-stage company with maximum leverage to silver’s next move. Even if you’re not a paid subscriber, I’d still recommend checking out the lead story—it’s free and digs into the forces driving this precious metals bull market.