Higher mortgage rates are already having a chilling effect on home prices.

More than one in five home sellers cut their house's asking price in September, according to a new report from Realtor.com. That's the greatest share of price drops in nearly four years and the most in any September since 2018.

You won't see that growing weakness reflected in most measures of home price data, which continue to show a slowly intensifying march higher-at least for now.

September's leap higher in mortgage rates kicked a housing market that was already down, recent data suggest. Pending sales measured by Redfin are lower in recent weeks, while sale cancellations are up, Neil Dutta, Renaissance Macro's head of economics, noted in a Tuesday report. "This is not surprising given the back-up in mortgage interest rates," he wrote.

Another sign of weakening emerged Wednesday: Price cuts in September increased to 20.8% of listings, according to Realtor.com data. Reductions haven't been this plentiful since October 2022, when the housing market was just beginning its multiyear slowdown due to surging mortgage rates.

Yet home prices measured by two gold standard price indices have kept marching higher. The rise of price cuts will likely tame modest but accelerating home price gains-though it won't appear in the data for months, for a few reasons.

The first is the lagging nature of gold-standard home price indices, such as the FHFA House Price Index and the S&P Cotality Case-Shiller Home Price Index. Both on Tuesday released their measurements for July, which showed home prices rising nationally up 2.6% and 1.9% from last year's levels.

What the indices lack in timeliness they make up for in comprehension: both are meant to measure how the sale price of the same house changes through time. That is quite different than median sale price data, which is more timely but doesn't control for a change in the mix of houses being sold.

The second is that a home's listing price is just a starting point for a negotiation that can take months, and cutting a house's listing price doesn't automatically mean the house will sell for less than it would have without the cut. It often takes a home sale a month or two to close after listing, meaning today's market conditions won't even show up in more timely measures of home prices, such as the National Association of Realtors' monthly median sales price, for a couple months.

Still, the frequency of price cuts can be a leading indicator for weakness in home prices, says Realtor.com senior economist Jake Krimmel. Part of the explanation for September's gain was the rise in mortgage rates. (News Corp, which owns Barron's, also operates Realtor.com.)

For many buyers, 7% was something of a psychological threshold, Krimmel says. "But also, if you look at at the rate of change-I think that's the part that's also really troubling," he says.

Mortgage rates, which are tied to long-term Treasury yields, are up roughly 0.4 percentage point from the end of August, according to Freddie Mac's weekly mortgage rate survey. It is the sharpest such move higher since late March and early April, when the war in Iran began to send oil prices-and, by extension, mortgage rates-upwards.

That rise comes right out of a would-be buyer's budget. After the most recent gain in weekly mortgage rates, to 7.03%, a buyer shopping with a $400,000 home loan would be on the hook for nearly $100 a month more than they would have been had they bought in late August. Given the 10-year Treasury yield's climb to 5.256% on Tuesday-its highest level since 2002-you can expect another gain this week.

With budgets already stretched to the brim and a wide array of homes to choose from, it's common to see buyers' offers come in as much as 10% under list price, "plus asking for all of the concessions that they can," says Josh Stimpson, a real estate agent based in the Nashville suburb Franklin, Tenn.

In Dallas, where roughly 28% of sellers cut prices in September, price reductions have become a way of life, says Todd Luong, a real estate agent at Texas's Re/Max DFW Associates. "Several years ago, if you saw a price drop on a home, everybody thought that house was haunted or something, but that's no longer the case," he says. "The majority of properties or are probably going to need at least one or two price drops before it sells."

Not every market is the same. In northern New Jersey, for example, "sellers that are cutting the prices generally listed too aggressively to begin with," says Michael Read, the principal broker of New Jersey-based Bridgeway Mortgage & Real Estate Services. Of the listings in the greater New York metropolitan area, just over 10% saw price reductions, the smallest share of the 50 largest metropolitan areas tracked by Realtor.com.

While rates remain high, expect patient buyers to take advantage of their negotiating power. In Nashville, where the brokerage Redfin estimates there are more than two for-sale homes for every one buyer in the market, many house hunters are "making lowball offers as many times they can, until they find a seller desperate enough to take it," says Stimpson, the Tennessee agent.

Buyers crunched by higher rates can save money in other ways. "What we do to offset that high interest rate is we ask for seller concessions, see if they can cover some of those closing costs," says Victoria Ray Henderson, the owner of the Washington, D.C.-area HomeBuyer Brokerage.

The price cuts building up in the data today-and being ultimately hashed out between buyers and sellers-will take months to shake out in home sales and show up in price trends.

Until then, buyers and sellers should come ready to negotiate.