Housing prices are up because of privet equity buying private real-estate as a "safe" investment during COVID. If the price of any of the houses they hold drops then the portfolio devalues. A 900K house only selling for 400K means all of their holdings have to be adjusted and devalued. They can only sell to other private equities to maintain the value of the investment leading to a Mexican Standoff of whoever sells first triggers the collapse.

Mortgage rates won't drop below 5% even if houses are devalued. Those rates are tied to investors since banks sell the 30 year loans (mortgage back securities, MBS) to retirement funds, foreign investors, or the Fed Reserve. The Fed is trying to get rid of the MBS it holds because it knows that it is artificially driving up the cost of housing (if the banks know the Fed will buy all their debt anyway, there's no incentive to adjust mortgages), but there is so little demand for MBS that they can't get rid of it fast enough causing a further inflated market. The dollar being devalued drives off foreign investors meaning the risk of buying MBS is even higher and less attractive to the debt buyers (investors). So even if the Fed cuts interest rates, the mortgage rates won't go down to the levels they were during COVID since those numbers were only down because the Fed was buying the MBS then to keep the market from completely crashing. It will be seen as an investment with even more risk if it isn't being backed by the US government. Mortgage rates will also stay high if too much MBS is held by the Fed because the US debt will continue to balloon and compound even faster now.
It's a lose-lose situation.