There’s something frozen about this housing market. “Zoom towns” like Boise and Austin aside, home prices nationwide have just refused to drop. Existing-home prices are on their seventh consecutive month of growth, according to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, a leading measure of home values for over 30 years. Average U.S. existing home prices are up by nearly 6% year-to-date and 2.6% year-over-year, which is “well above the median full calendar year increase” in more than three decades of data, according to Case-Shiller. But now we know that a crack appeared in October—and it was among sellers.

The challenges of soaring mortgage rates and home prices aren’t just impacting buyers—they’re plaguing sellers, too. Even with limited existing home inventory, a record number of them dropped the prices on their listings in October, according to a new Redfin report.

Nearly 7% of for-sale homes in the U.S. posted a price drop during the four weeks ending Oct. 29, which is the highest portion since Redfin started tracking this data in 2012 and far surpasses the 3.6% of homes that lower their price in an average month. This 11-year record comes as mortgage rates have steadied between 7.5% and 8% this past month, the highest they’ve been in two decades. (It’s important to note, however, that even with last month’s drops, home prices are still up 3% year-over-year, according to Redfin.)

Mortgage rates have also largely been on the rise this year, peaking at about 8% in October. Rates did drop briefly to 7.4% on Friday in reaction to a disappointing jobs report showing that just 150,000 jobs were created last month, which was 20,000 fewer than forecasted. Rates appear to be making a slow climb back to 8%, though, with Mortgage Daily News reporting a mortgage rate on Monday of 7.48%. Plus, economists and real estate experts alike expect mortgage rates to remain around 8% for the next couple of years.

High rates have forced some sellers to cut prices to make up for the added expense buyers have to come up with on monthly mortgage payments, according to Redfin. Almost a quarter of new buyers are paying at least $3,000 per month for their mortgages, according to Black Knight; the average American earns just $4,600 per month, making that large of a payment unaffordable for most. That’s led to a stunning 15% year-over-year drop in existing-home sales activity in September—a “deep freeze” that Zillow warned of back in May.

“Sellers need to cut prices to counteract higher payments, and keep buyers interested in their property in a market with fewer buyers,” Matthew Walsh, Moody’s Analytics’ housing economist, tells Fortune.

For the housing market to really move again, mortgage rates either need to come down or home prices need to drop, Chen Zhao, Redfin’s research lead, tells Fortune.

“Otherwise, the transactions will only grow very slowly over a long period of time as the lock-in effect gradually wears off and affordability slowly improves,” Zhao says. “Rates can come down, though, when it’s clear the Fed will be able to bring inflation to its target or we get clear evidence of the economy heading toward a recession.”

Buyers just can’t afford today’s mortgage rates and home prices

As mortgage rates continued to climb late this summer and into the fall, buyer demand has dwindled as housing affordability has become abysmal for a large portion of millennials and other people of prime homebuying age, “sidelining potential buyers,” Walsh says.

Indeed, another Redfin report from October says a prospective homebuyer needs to make $114,627 to afford a home in today’s market, which is a 15% year-over-year increase and the highest annual income on record needed to comfortably buy a home. This is a problem considering that median household income was $74,580 in 2022—about $40,000 less than Redfin’s projections. (Redfin’s reporting takes into account income, average monthly mortgage payments, and current mortgage rates.)

“Qualifying incomes average 80% higher than they were before the pandemic began, and monthly payments are composing a larger share of take-home pay,” Walsh says.

Will prices continue to drop?

Realtors and economists alike expect home prices to drop through the end of 2023. Adie Kriegstein, a real estate agent in Manhattan with Compass Real Estate, says she has been telling her clients, “sellers want last year’s prices and buyers want next year’s prices.”

While the housing supply in New York City ticked up slightly during the last week of October, there are fewer deals happening, she tells Fortune, which is why she expects price cuts through the winter.

“While some [homes] were likely priced too high to start, many have had to adjust quickly to price aggressively as the market trends downward,” says the 15-year real estate vet. “You can no longer price based off of where sales were and assume you’ll get the same or more.”

Moody’s Analytics predicts home prices will drop about 4.5% over the next two years, Walsh says, despite low inventory.

“Rates will remain higher for longer, and we expect demand to remain very low into 2024,” he says. “Following two years of double-digit price growth, the housing market remains overvalued, and affordability is near a four-decade low. In turn, sellers will capitulate on list prices.”

Expert Insights: Kirk Jaffe’s take on the article above

This article talks about the collapse of the housing market....today the Bureau of Labor Statistics finally issued a report that unemployment is rising. In fact, the delta is now at .33 and in every recession since the 1940s, when the delta hits .5 a recession occurs. The final domino is on its way now to falling....why does this matter?

Well, in recessions mortgage interest rates drop and home prices increase. There are a record number of buyers in the sidelines and the time is coming for the real estate markets to once again explode. Buy a home today, even with the higher interest rates.

Enjoy the appreciation and refinance down the road when rates drop. Call if you have questions or want to find out how to make money using a new Modular Built Custom Home in this market. www.ModuFi.net

© FORTUNE