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Because you have a 2.5% mortgage and your monthly payment is still smaller than than 300k house at current rates. This is going to be the main issue to me. People are just going to sit in all these houses with bloated prices because the rates they pay are so low, and prices are going to have a very hard time returning to anything close to what they were with inventory so low.

This is the situation I’m in. I’m in the Seattle metro and the mortgage on my 3 bedroom ranch is less than a 1 bedroom apartment in Seattle. I can commute if I need to but why would I ever give this up? I have 0 other debts which makes it extra compelling.

Even in non-recourse states, walking away from your mortgage will decimate your credit score and preclude you from getting a mortgage on a cheaper property in practice, even if theoretically it pencils out on paper.

You will never get approved, unless you have workarounds. Even if you did that 7% interest rate will make it all even out for most people.