US home prices just did something they haven’t done since 2012.

US home prices in February posted their first year-over-year decline in more than a decade as surging mortgage rates put the squeeze on the market.

The average US home sold for $350,246 for the four weeks ending on Feb. 26, according to an analysis by real estate firm Redfin this week. The sale price plunged by 0.6% compared to the same month one year ago — the first annual decline since February 2012.

“Prices falling from a year ago is a milestone because it hasn’t happened since the housing market was recovering from the 2008 subprime mortgage crisis,” Redfin deputy chief economist Taylor Marr said in a statement.

“Home prices skyrocketed so much over the last few years that they were likely to come down once rates rose from historic lows,” Marr added.

Mortgage rates have jumped again in recent weeks as worse-than-expected inflation reports sparked fear that the Federal Reserve will continue hiking interest rates. The average 30-year mortgage rate rose steadily throughout the month of February and hit a whopping 7.1% as of this week.

Higher rates have exacerbated an affordability crunch and pushed many homebuyers to the sidelines. At the same time, would-be sellers are forced to either slash their asking prices or delay their plans entirely.

“Mortgage rates rising to the 7% range was the straw that broke the camel’s back, dampening homebuying demand and leading to sellers asking less for their home,” Marr added.

The largest price declines were in “pandemic homebuying hotspots,” the firm said.

Austin, Texas, posted the largest year-over-year decline of 11%.

Despite the dropping prices, first-time homebuyers are unlikely to see much relief, according to Marr.

“That’s because so few homeowners are listing their homes for sale. Limited inventory and continued interest in turnkey homes in desirable neighborhoods will keep prices somewhat propped up — and high rates will continue to be a hit on affordability.”

The price declines are most severe in so-called “pandemic boomtowns.”
While most experts agree that the US housing market is in the midst of a correction, the extent of the projected price slump is a matter of debate.

In a report earlier this week, researchers at the Dallas Fed warned that home prices could plummet by nearly 20% in the event of a severe contraction in US housing.

Last year, Redfin predicted that US home prices would fall by 4% in 2023 as mortgage rates cooled the market.

Another firm, Pantheon Macroeconomics, has projected a much sharper decline of up to 20%.