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In recent months, data related to sales of both new and existing homes show that the number of sales is flattening out, if not actually declining. Sales of existing homes have dropped slightly in each of the past five months. New home sales have been declining for eight straight months.

Not all of that decline is attributable to rising interest rates, higher prices for homes, or low inventory. Prices have continued to rise although the price hikes have begun to slow. Inventory is also rising, although the increases have just begun and are, so far, fairly modest. Interest rates have averaged more than 4.5% for the past five consecutive months and more than 4.4% for the past seven.

In general, interest rates are the first leading indicator in the housing market and have a strong influence on sales. Sales are the second leading indicator and exert their influence on prices. Price, in turn, leads inventory.

So, where is the market right now?

Danielle Hale, chief economist at Realtor.com, said, “The signs are pointing to a market that’s shifting toward buyers.”

Mortgage interest rates have risen about 0.8% over the past 12-months. That’s important because every additional 1% increase results in a jump of $143 a month in your mortgage payment. For first-time buyers–and most of the rest of us–that could affect getting a loan at all.

That leads to a decline in sales which encourages sellers to drop their price. Realtor.com notes that in August the number of homes in Santa Clara County, California (aka the Silicon Valley) on which asking prices were lowered soared by 171%.

Also in August, the number of listings in the Silicon Valley rose by 77%. Buyers are asking themselves, “If I buy now, am I paying the highest possible price? Maybe I should wait a while and see if prices come down.” If, in fact, housing prices have risen too much, inventory will swell, and prices will have to come down if builders and homeowners want to sell.

This part of the cycle is just beginning, and the ride could be bumpy for a while, especially as we enter the holiday season, a traditionally low-sales period for real estate.

For more details and discussion, visit the Realtor.com website.