U.S. home sale prices increased 4.5% year over year to a median of $297,200 in October, according to Redfin.

October's year-over-year price increase marks a return to an overall healthy level of price growth after posting a 6.5-year low level of growth in September.

Home prices typically decline from September to October, having fallen by an average of 1% between the two months over the previous eight years. This October however, prices increased nationally 2.4% month over month. Despite this national increase, just 32 of the 71 largest metro areas Redfin tracks saw home prices increase from September to October, which it said suggests that the monthly gain is due to the share of homes selling last month shifting slightly to more expensive areas rather than individual homes increasing in value.

However, evidence that the market is cooling down can be seen in price drops. In October, 31.3% of homes for sale had at least one price drop of more than 1%. This is the highest share of price drops on record since Redfin began tracking this metric in 2010, and 6.3% percentage points above last October's level of 25%. In Seattle, almost half of homes for sale had price drops, with an average price cut of $27,500, down from more than $30,000 a year earlier.

The number of homes for sale was up 1.3% from a year earlier, the highest level of inventory growth since September 2015. National inventory growth continues to be driven by big increases in softening coastal markets like San Jose (110.9%), Seattle (73.2%), San Diego (38.2%), and Boston (17.3%).

The number of homes newly listed in October rose 5.4% year over year, but the number of completed home sales continued to sink, dropping 5.7% from 2017. Home sales declined in 59 of the 71 largest metro areas that Redfin tracks.

Metro areas like Seattle, San Diego and San Jose, where high home prices mean that rising mortgage rates have the largest effect on affordability, are seeing the biggest increases in inventory coupled with decreasing sales. The biggest sales declines were in some of the most expensive metros, including Seattle (-19.6%), San Diego (-15.7%), and Honolulu(-22.9%).

"An increase in interest rates effectively makes home-buying more expensive because buyers have to pay higher monthly mortgage payments even if the sticker price hasn't changed," said Redfin chief economist Daryl Fairweather. "Some home buyers are adjusting their price range down, and others are backing out of home-buying entirely -- deciding that renting is a better deal. Sellers are now realizing buyer demand isn't what it used to be and are dropping their prices. When buyers and sellers are on the same page, the market moves quickly, but since sellers were slow to react, we've seen a slowdown in the housing market."

Across Redfin metros, the typical home that sold in October went under contract in a median of 43 days, two days faster than last year. This October, 20.3% of homes sold above the list price, down from 22.9% last October. The share of homes that went under contract within two weeks also fell, from 23.6% last October to 21.3% this October.

"Another factor we're watching closely as we examine national housing market trends going into the end of the year is the devastation of the California wildfires," Fairweather continued. "While the fires are disrupting many Californians' lives and therefore any immediate home-buying plans, we're already hearing from Redfin agents in Southern California that they expect homeowners and home buyers to be resilient as they have in the face of past natural disasters, with renewed commitment to rebuilding and picking up where they left off with a home search. The fact is that rising mortgage rates and high home prices have a bigger long-term effect on the local housing market than the fires' destruction."