Correct me if I'm wrong, but if interest rates went up 10% tomorrow, housing prices would have to come down if people wanted to actually sell their homes.
I think the biggest challenge you will come up with then, is that if interest rates go up 10% you also just increased their opportunity cost to exchange a house up 10% interest for current owners, and now you have to buy them out of the differential between the ZIRP loan they got and the new interest rate to make it worth their time to sell it.
The 30 year mortgage on ZIRP basically created a ratched effect that locked up the market for 30 years, the only way to unlock it I can think of is to drastically reduce the cost to build a house, you don't even need to hardly even actually build any, just force the hand of current owners by making the replacement cost radically lower.
Housing prices would come down (although many sellers would back out, crushing supply), but mortgage payments would skyrocket. Interest rates and housing is kind of like squeezing a balloon. Building new homes is like letting air out.
