The latest Case-Shiller home price report showed a 0.3% monthly fall in the 20-city index in April, steeper than March’s downwardly revised 0.2% dip.

In a note on Tuesday, Thomas Ryan, North America economist at Capital Economics, warned that the back-to-back declines could signal a “deeper correction” ahead.

“After falling in March, the further 0.3% m/m decline in house prices in April raises the risk that prices are entering a sustained downturn, as the market finally buckles under the weight of near-7% mortgage rates,” he added.

On a three-month annualized basis, house prices fell by 0.4%, Ryan noted. And while prices are up on a year-over-year basis, it’s still the slowest pace since August 2023

The Case-Shiller data isn’t the only red flag, as the FHFA price index showed a 0.4% monthly drop.

“Clearly, the existing homes market is losing momentum as demand remains anemic due to sky-high borrowing costs, while more people put their home up for sale, forcing sellers to adjust their price expectations,” Ryan wrote.

Previous data also line up with a downtrend. The median sale price of an existing home has dropped for five consecutive months on a seasonally adjusted basis. That’s as the number of homes available for sale is back around pre-pandemic levels.

To be sure, lower prices also make homes more attractive, potentially spurring more demand and representing some relief for younger Americans who are looking to buy but have been priced out of the market.

But economists at Citi Research flagged ongoing headwinds, attributing the price declines to high mortgage rates, elevated uncertainty, softening consumer demand, and a weakening labor market.

In addition, slowing activity in the housing sector overall is an early sign that underlying demand is weakening this year, Citi said in recent note.

“While prices could still fluctuate month-to-month, consistent softening in median sale prices suggests the trend is likely to continue in more stable measures of new home prices like the Case Shiller index,” economists predicted. 

Capital Economics said there are still some reasons to believe a prolonged downturn can be avoided. Ryan pointed out at that supply remains relatively tight overall, despite some expansion lately.

Meanwhile, the mortgage market is also healthy, reinforced by more than a decade of stricter lending standards instituted after the Great Financial Crash. Plus, continued resilience in the labor market should prevent forced selling in the housing market, he added.

“All that being said, the weakness of the recent price data mean that we have to start taking the prospect of an extended period of house price declines more seriously, which is something we will be considering for our upcoming US Housing Outlook,” Ryan said.