This interactive map shows the shift in America’s biggest housing markets

At the time, housing bulls disagreed. In their view, home prices wouldn’t actually fall unless inventory levels—which remain 41% below 2019 levels—skyrocketed well above 2019 levels.

Fast-forward to October, and it’s clear that John Burns Real Estate Consulting got it right. The latest reading of the lagged Case-Shiller National Home Price Index shows that U.S. home prices fell 1.3% between June and August. That marks the first national decline in home prices since 2012.

“The longer that [mortgage] rates stay elevated, our view is that housing is going to continue to feel it and have this reset mode. And the affordability resetting mechanism right now that has to happen is on [home] prices. And so there are a lot of markets across the country where we’re forecasting that home prices are going to fall double digits,” Rick Palacios Jr., head of research at John Burns Real Estate Consulting, recently told Fortune.

While the home price correction has clearly arrived, it isn’t one-size-fits-all. Among the 20 major U.S. housing markets tracked by Case-Shiller, the home price decline ranges from just -0.01% to -8.24%.

Let’s take a look at the regional data.

The West

Whenever the Fed flips into inflation-fighting mode, it’s going to spell bad news for interest rate sensitive industries, like venture capital and real estate.

That might explain why San Francisco, which saw home prices nosedive 8.24% between June and August, has shifted particularly fast. Not only do spiking interest rates deter buyers from high-end homes, but they also have an acute impact on tech employment and tech stocks. San Francisco, of course, has a lot of high-end real estate and tech jobs. Cue a faster correction.

Just behind San Francisco are fellow high-cost West Coast markets like Seattle (down 6.92%), San Diego (down 5.44%), and Los Angeles (down 3.93%).

The Rest

In the Northeast and Midwest, things are milder. Between June and August, markets like Cleveland (down 0.01%), New York (down 0.44%) and Boston (down 1.13%) barely fell. The reason? For starters those markets have less strained affordability. At least compared to markets like San Francisco, Seattle, and Phoenix.

Additionally, unlike bubbly boomtown markets in the South and West, markets like Boston and Cleveland aren’t overcrowded with iBuyers and homebuilders. Historically speaking, primary homeowners don’t relent on price unless economics forces their hand. However, iBuyers and builders are much faster to slash prices if things begin to shift downwards.

“When the shiitake mushrooms hit the fan, you [investors] want to get out first. The way to do that is to figure out where the lowest sale is, and be 2% below that. And if it doesn’t sell in the first weekend, move it down [again],” Redfin CEO Glenn Kelman recently told Fortune.

‘Difficult correction’

Fed Chair Jerome Powell has made it clear: The U.S. housing market had entered into a “difficult correction.”

Industry insiders see this ongoing housing correction as a period where the U.S. housing market—which got priced to 3% mortgage rates—works toward equilibrium. As homebuyers pull back, the housing correction will continue to cause a sharp decline in home sales and homebuilding levels. It will also continue putting downward pressure on home prices.

What economists can’t agree on is how far U.S. home prices might fall. Morgan Stanley thinks home prices will fall 7% from peak-to-trough. Goldman Sachs predicts a 7.7% drop between peak-to-trough. While Moody’s Analytics predicts a peak-to-trough national decline of 10%. But if a recession manifests, Moody’s Analytics expects that total home price decline to come in between 15% to 20%.

How can home prices fall double-digits despite favorable millennial demographics and tight mortgage lending standards? Moody’s Analytics chief economist Mark Zandi points to strained affordability. Home prices simply went up too high, too fast during the Pandemic Housing Boom. And this time around, sellers and buyers alike know that home prices can fall.

“The psychology around house prices has changed. It—that psychology of ‘house prices never fall’—got broken by what happened in the financial crisis. People saw prices go up and they go down. And that is impacting the market today. Sellers are willing to sell. Particularly, [they] realize ‘I’m not getting the price I could have gotten a few months ago, but it’s still much higher than I could’ve gotten three years ago.’ So, they feel like they’re doing OK. Even with these price declines, they’re still up a lot from where they bought the home originally,” Zandi tells Fortune.

Want to stay updated on the housing correction? Follow me on Twitter at @NewsLambert.

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