Americans are increasingly slowing home purchases amid rapidly climbing interest rates. Last week, mortgage applications sank 14.2% over seven days, the lowest level in a quarter-century. Compared to the same period last year, applications are down 37%.

September marked the third consecutive month with a 75-basis point interest rate hike, the most aggressive stretch of Fed tightening in nearly three decades. The key benchmark federal rate has reached a range of 3% to 3.25%, the highest level since the 2008 financial crisis, and the 30-year fixed mortgage rate now stands at a dizzying 6.75%.

Given the impact rates have on mortgage payments, it’s hardly surprising demand is slowing. To put the climbing rates in perspective, they have added $337 – or 15% – to the average monthly payment over the last six weeks alone.

Last year, a monthly budget of $3,000 would have gotten you 1,647 square feet in major U.S. metropolitan areas. Now, that same monthly payment will get you 1,498 square feet. Put another way, on average, Americans can afford homes that are 9% smaller compared to last year.

The silver lining for home buyers: rising rates place downward pressure on prices. As rates climb, the pool of potential buyers shrinks, forcing prices lower. Eventually, buyers begin to reenter the market.

In fact, U.S. house prices recently recorded the largest monthly declines since the 2009 housing crash. In August, median monthly home prices in the country dropped 0.98%. The month prior, median homes prices were down 1.05%.

Markets that were popular during the pandemic or saw a surge in homebuilding are particularly susceptible to a major correction. Some experts predict cities like Dallas could experience a 20% reduction in value in the current environment.

Most experts expect home prices to remain lower until the Fed reverses its interest rate hikes. How soon is anyone’s guess, but most anticipate easing won’t occur until at least next year. According to Mark Zandi, the chief economist at Moody’s Analytics, “Mortgage rates won’t significantly recede until it is clear the Fed has ended its rate hikes, and that’s unlikely until well after next year’s spring home selling season.”