U.S. Home Prices Slip for the First Time in Over Three Years as Mortgage Costs Stay Elevated

Sellers are beginning to trim asking prices, but buyers are still holding back. A shock in the bond market is pressuring both sides of the transaction, and Zillow executives say they do not see a clear path to improvement. What might be needed to break the standstill?

American home prices have moved lower for the first time in more than three years. Redfin said the median U.S. home-sale price dropped 0.1% from a year earlier in the four weeks ending October 25, following a 0.2% decline the prior week. The median sale price is now $389,601.

The decline offers little relief for buyers. Redfin’s typical monthly mortgage payment climbed to $2,786, the second-highest level in its records and 10.7% higher than a year ago. Pending home sales fell 15.9% from a year earlier to their lowest point in Redfin’s weekly data, which dates back to 2021.

Longer-term measures point in the same direction. The S&P CoreLogic Case-Shiller National Home Price Index fell 0.2% in August, marking its first monthly decline after reaching a peak in July.

Price Cuts Buyers Still Cannot Feel

The difference comes down to borrowing costs. Freddie Mac’s 30-year fixed mortgage rate averaged 7.18% in early November, up from 6.22% a year earlier and well above the 5.98% low reached in late February. Zillow Group management said the rise from the mid-6% range in June to the mid-7% range by early autumn was among the steepest three-month rate increases since the 1980s.

Consider a typical loan. Borrowing $350,000 at 6% costs about $2,098 per month in principal and interest. At 7.3%, the same loan rises to roughly $2,400, or about $300 more each month for the same home. A small dip in the sale price does little to offset that increase.

Bond markets helped drive the move. The 10-year Treasury yield briefly hit 5.31% in early October and was still near 4.90% this week. The Federal Reserve provided no relief, raising its upper bound back to 4.00% in September and leaving it unchanged at its late-October meeting. Homeowners with low-rate loans are staying put, while builders are pulling back: housing starts fell 5.2% in September to an annualized pace of 1.22 million.

Zillow Shows Where the Pressure Is Landing

Zillow’s results provide a close look at the slowdown. Third-quarter revenue rose 7.1% to $724 million, falling short of the $754.98 million consensus estimate. Residential revenue, which is linked to home sales, declined 4%, while Rentals jumped 26% as rental demand increased nearly 20%.

CEO Jeremy Wacksman said the speed of the move was the key problem: “The shock is probably what caused the drop more than the fact that rates are actually at a 7 handle.” Zillow expects industry purchase-mortgage volume to fall 10% to 15% in the fourth quarter. CFO Jeremy Hofmann was more direct: “It’s not obvious to us how things necessarily improve.” The stock is trading at $29.83, down 56.27% this year.

The correction is showing up first in transaction volume. Existing home sales are running at a 3.99 million annualized pace, and the drop in prices reflects a buyer strike. Sellers are losing equity while buyers are gaining very little, a combination that weighs on households whose biggest asset is their home.

What to Watch Before the Next Spring Buying Season

Lower prices only matter if mortgage rates also ease. The Freddie Mac weekly survey will be an important gauge: a move back toward 6.43%, where rates stood in early summer, would reduce monthly payments far more than a modest price decline. Next, watch whether the annual Case-Shiller reading turns negative as later data comes in. Finally, compare Zillow’s next earnings report with its guidance for a 9% to 15% decline in Residential revenue. Results near the low end would suggest buyers are returning. A miss would point to further price declines and mortgage payments still stuck near record highs.