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Home values in the U.S. declined in August by the largest margin in more than a decade, prompting some experts to reevaluate forecasts for the year ahead.

Zillow is now predicting that home values will rise by only 1.2% through August 2023, just one month ago the home listing site was projecting a 2.4% increase.

“The downward revisions come as a result of recent housing market indicators continuing to show buyers hanging back while affordability obstacles remain as high as they’ve been in recent memory,” the company noted in a report.

The value of a typical home was $356,054 in August, according to Zillow’s Home Value Index. That’s down 0.3% from July and the second month in a row that home values fell. However, July’s 0.1% decline was the first decrease in home values since 2012. Home values are still 14.1% higher than they were one year ago and up more than 40% since before the pandemic.

Why higher mortgage rates mean slower price growth

Rising mortgage rates are pushing buyers out of the market as it becomes more expensive to borrow money for a home, according to Zillow. The reduction in competition on the buyer side is allowing prices to fall.

The average rate on a 30-year fixed-rate mortgage surpassed 6% last week, according to Freddie Mac, which is more than double what it was this time last year. With the recent jump in rates, the monthly mortgage payment on a typical new home has risen to $1,643, an 83% increase since August 2019.

“Affordability challenges brought on by higher mortgage rates this year are a key driver of cooling home buyer demand,” Zillow said.

Some experts anticipate a steeper downturn in home values. Real estate analyst Ivy Zelman, CEO of Zelman & Associates, thinks home prices will fall by 4% in 2023 and by 5% in 2024, she said on a recent episode of the podcast Macro Hive.

Zelman says the market is slowing down after home values skyrocketed during the pandemic, when substantial stimulus benefits were available and low interest rates made it cheap to borrow.

“Right now, we’re getting a backlash of the change in direction from free money to now rising rates, inflation, and so the market is now poised for a fairly significant correction, and we’re already seeing signs of that in the last several months,” Zelman said.

Home values still vary by market

In August, home values fell the most in expensive regions of the country as well as in areas where home values increased by the largest margins during the pandemic, Zillow reported. In general, values are holding strongest in Midwest markets.

Among the 50 largest housing markets, home values declined most sharply last month in three California cities — San Francisco (-3.4%), Los Angeles (-3.4%) and Sacramento (-3.2%).

Home values increased the most in three cities where the average home is much more affordable. The top three largest increases were in Birmingham, Ala. (0.9%), Indianapolis (0.5%) and Cincinnati (0.4%).

More from Money:

Freddie Mac Mortgage Rates Top 6%, With No Sign of a Slowdown

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