You likely won't even need it to get that high to see the direct impact on prices. Even an extra 1% adds so much in interest costs to the "average price" that the vast majority of buyers "should" get priced out pretty soon. Only market response then (really) is to lower prices. But, let's just see if 100% financing and no doc loans makes a big time comeback across the board. That'll be the lever they likely pull to allow the SFR market to wallow along with higher interest rates--all the while setting us up for another potential collapse.
We need to have the pain inflicted stat, endure the pain, and not jump right back on the merry go round to repeat the past mistakes. It'll never happen tho.
Here is the flip side. Or, flip sides.
Rents are going up in most markets. If a young family or recently divorced or widowed person are paying $X monthly rent and want to put down roots locally then the buying decision is a bit more complex than timing the housing market. Those people will not always wait for the best moment to buy but rather a moment to buy.
If you own a home though yet are willing to pull up roots to move for retirement or career or to be nearer ailing parents then you might be able to sell where are and pay 100% cash at your destination even if have some amount of mortgage currently. Interest rates will not matter if all cash or a nominal mortgage is needed to buy. with expectations will pay off is a few years rather than 15 or 30. Rising household income or inheritance has a way of erasing mortgages faster than would expect.
I graduated high school in 1979 and needed a reliable 1/4 ton truck for my job. I needed a loan and was a 24 month loan at 12% if I recall correctly. No penalty to pay off ahead of time and I did side hustles and went without to pay that loan off several months ahead of time. My first home loan was years later and was 6% or so and that was what it was and really can't recall if was increasing or falling or steady. I felt a home was a good decision, had some money for down payment and opted for fixed rather than adjustable since wanted the comfort of knowing my monthly was capped for all 360 months. Sold that home 4 years later and moved to an older home on some land and I think was within 1% of the prior loan and did the 30 year fixed again. Paid that home off in 10 years or so. No mortgage then bought a vacation home then paid that off in 7 years, also fixed but a 15 year loan.
Interest rates are a growing factor now, especially for someone who needs to put most of their net worth and rainy day cash fund into the down payment. Is scary and creates a tight rope if lack the safety net of family to turn to if lose a job or have some medical bills arise or the roof goes bad or you go with an adjustable that resets quarterly to be a few $100 more monthly each time.
I don't see housing sales crashing in volume nor values, though. A 10% reset would be a lot the next 24 months. There may be some areas that crash but they are the areas that tend to roller-coaster (i.e. Southern California or the Bay area) or is a region that is de-populatiing (almost no where in America) the next couple of years.
I do see consumer debt growing and if housing prices are steady then recent homebuyers will lack home equity to tap so foreclosures will climb and that puts pressure on home values but historically 3% is typical for the default of single-family home loans and we are still below that mostly due to "free" money beginning June 2020 and rising home values. Post-2008 stress on income and falling housing pricing pushed the default rate to around 10% briefly. I don't see that on the horizon this time but 4% could be reached by end of 2023 when I expect the recession to officially end.
Just my musings. No dog in the fight in the near future though will sell a home in 30 months when retire then either invest the proceeds since have another home now or buy another home. Interest rates will impact my willingness to take on a mortgage at that point.