Housing prices are still high relative to their fundamental determinants, such as interest rates and residential rents, he said. The uncertainty is magnified by the fact housing isn't weakening for the usual reason: high interest rates. Rather, he said, the sector is weakening because sales and construction had risen so much.

Kohn noted that long-term rates are "relatively low," which is supporting housing. He said long-term rates could rise if short-term rates fail to follow the downward path currently built into market expectations, or if "term premiums" rise. The term premium is the additional interest rate a lender charges for a long-term loan, compared with a short-term one.