For the past two years it seemed that the Fed’s rate hiking cycle has been flipped on its head and that Erdoganomics, as batshit insane as it is, was the rule of the land: instead of home prices dropping, as one would expect under tighter financial conditions, home prices kept rising and rising, because in a world where the marginal home buyer has been limited to an extremely narrow group of cash-rich 1%ers, who needs mortgages?

But tighten long enough, and even the top wealth tiers begin to fray, and that’s precisely what we are now seeing in the US housing market, which – since it is the biggest asset of the US middle class, unlike the stock market which is the playground of the top 1% – is also the most tangible leading indicator for the broader economy. We saw that in the latest Case Shiller numbers where the Composite 20 city index posted its first YoY decline since early 2023…

…. and we are also now seeing it in the latest Redfin home price data, where among other things, we find that as average home sale prices hit new all time highs, the number of actual transactions has collapsed while the number of new listed homes is surging and last but not least, the number of price drops reported – which is what those who need the extract the money from their real estate yet can no longer afford to live in the mark-to-myth world created by record wide bid/ask spreads, just jumped to the highest on record.

Here are the details:

The median sale price hit $397,954, the highest on record, and a 4.9% YoY increase, the biggest since March.

The median asking price hit $409,975, which at a 6.1% increase YoY, was the biggest increase since October 2022

Yet asking prices are finally plateauing, because at $2,749, the number of remaining potential buyers who can afford to pay almost double the average monthly payment from 2021 can be counted on one hand.

And with sellers keeping prices artificially high (after all, most of them don’t really need the money right now, and are just dangling asks for desperate buyers to lift) the actual number of transactions has collapsed, as the number of price indescriminate buyers has cratered, leading to widespread market paralysis.

With the market paralyzed, it’s no secret why the number of active listings of homes for sale has soared 18% year over year as inventory just keeps piling up…

… resulting in 3.3 months of supply which is a record for this time of the year.

The inventory glut also means that it takes longer and longer to sell the median home…

… into a market where demand is plunging 17% YoY.

Yet sellers are starting to get impatient, and after a record 55% of homes sold above listing price in 2022, the number has since tumbled to just 32.3%.

And perhaps the most important data point: while in the past sellers had the luxury of just waiting out the lack of buyers, the first true crack in the market has finally appeared because sellers are finally starting to chase bids (which are not rising) and the number of listing that had price drops surged to 6.9%, the highest on record.

That means that unless the Fed cuts rates significantly in the next few months, the housing market is on the verge of creating its own reflexive and self-reinforcing liquidation spiral, as more sellers cut prices, forcing even more sellers to cut prices until suddenly the specter of a full-blown housing crash returns… just in time for Trump’s presidency.