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Speaking to reporters in September, Fed Chair Jerome Powell made it clear that going forward the U.S. housing market would get “reset” by a “difficult correction.”

“Houses were going up at an unsustainable fast level. So the deceleration in housing prices that we’re seeing should help to bring prices more closely in line with rents and other housing market fundamentals. That is a good thing. For the longer term what we need is supply and demand to get better aligned so that housing prices go up at a reasonable level and at a reasonable pace and that people can afford houses again. We probably in the housing market have to go through a correction to get back to that place,” Powell said. “This difficult [housing] correction should put the housing market back into better balance.”

That “difficult [housing] correction” has already seen the U.S. housing market flip from inflation mode to deflation mode.

For 124 consecutive months, spanning the bottom of the previous bust in February 2012 to the top of the Pandemic Housing Boom in June 2022, the seasonally adjusted Case-Shiller National Home Price Index reported positive home price growth. Now we’re in a new streak: Four consecutive months of U.S. home price declines.

On Tuesday, we learned that U.S. home prices as measured by the Case-Shiller National Home Price Index fell 0.3% in October. In total, U.S. home prices are down 2.4% since peaking in June.

On one hand, a 2.4% decline in U.S. home prices sounds like a drop in the bucket. On the other hand, it’s already big enough to count as the the second-biggest home price correction of the post–World War II era. (It’s just above the 2.2% drop between May 1990 and April 1991, however, far below the 26% peak-to-trough decline that occurred between 2007 and 2012.)

To better understand the ongoing housing correction, let’s take a closer look at the Case-Shiller data.

Not long after the Federal Reserve started applying upward pressure this spring on interest rates—something that saw mortgage rates surge from 3% to over 6%—the U.S. housing market went into correction mode. The reason being that elevated mortgage rates, coupled with sky-high home prices, pushed affordability into the upper bounds of history.