US house prices fell 1.3% during August, according the S&P CoreLogic Case-Shiller Indices. Bloomberg makes that the largest monthly decline since March 2009. 

The Federal Reserve's scorched earth approach to taming inflation has pushed 30-year mortgage rates to just shy of 7% and values will need to adjust. Annual growth is still running at 13.1% but that number will continue to shrink. All 20 cities in the index saw a monthly decline during August led by San Francisco (-4.3%), Seattle (-3.9%), and San Diego (-2.8%).

Context is important and August's falls leave prices in all 20 cities well above their levels just 12 months ago. Prices in Miami, for example, remain up 28.6%. Prices are up 28% in Tampa. Charlotte, Dallas and Atlanta have all chalked up increases of more than 20% compared to a year ago. 

How far this runs depends on the Fed's ability to engineer the so-called soft landing - bringing down inflation without a spike in unemployment. Previous housing slowdowns have avoided mutating into crashes when employment has remained resilient, which keeps forced sellers low, according to research from Innes McFee, chief global economist at Oxford Economics. He puts the chances of a double-digit fall in US house prices at 35%.

The pivot

The Fed is widely expected to execute another 75bps rate hike at its meeting next week, but it may start easing off after that. 

San Francisco Federal Reserve President Mary Daly said in a speech Friday that policymakers were concerned about raising rates too quickly, prompting an unforced downturn. "I think the time is now to start talking about stepping down," she added. 

Most Fed policymakers believe the key rate will need to rise to between 4.5% and 5% next year. Those projections are still reasonable, according to Daly.