Anyone who’s tried to buy or sell a home lately is no doubt painfully aware that today’s real estate market has slowed down considerably—but why?

A new Realtor.com® report sums it up as the “chicken and egg” problem. Allow us to explain.

It all starts with mortgage rates—which are about 1 percentage point higher than last year, hovering in the mid-6% range. This is a formidable deterrent not only for buyers, but also for sellers, who feel “locked in” to their current properties (along with the lower mortgage rates they got years earlier).

As a result, even homebuyers who are willing to pay high rates are finding few homes for sale, with May clocking 22.7% fewer new listings than last year.

“Many sellers report being concerned about finding another home, which may cause some of them to put plans to list on pause,” says Realtor.com® Chief Economist Danielle Hale. “But this reduces the total number of options for buyers in the market.”

Home prices continue upward—but not for long

In addition to slim pickings, homebuyers are still grappling with high prices. In May, the median listing price grew to $441,000, up from April’s $430,000.

And odds are, prices will head even higher in June.

“Historically, we typically see home prices top out in June,” says Hale. “I expect this year will be typical in that regard, with home prices hitting their highest level in June and retreating beginning in July.”

In fact, last June, median prices hit an all-time record high of $449,000. But odds are, this June’s home prices won’t surpass that, given annual price growth has tapered off considerably. May’s home prices, in fact, are only 1.1% higher than this same month last year.

“Based on current trends, it’s possible that [home prices] won’t hit the previous year’s peak for the first time in our data,” says Sabrina Speianu, economic data manager at Realtor.com.

While this news should come as a relief to buyers, today’s higher mortgage rates mean they’ll still pay more for a house now than they would have last year—about $280 extra per month, if they make a 20% down payment.

Yet if mortgage costs refuse to fall, home prices will eventually have to come down to compensate—and already are in some cases. Listings with price reductions rose from 10.2% in May of last year to 12.7% this year.

And so good things may come to buyers who wait.

“Sellers appear to be aiming for a relatively high starting point in the market this year and are willing to negotiate if needed,” says Hale.

The slowing pace of real estate

While few new home sellers are entering the market lately, the overall number of listings—which includes both new listings and oldies still on the market—is up by 23.4% compared with last May. Still, many of these listings have been picked and passed over by buyers already, with homes lingering on the market for a median of 43 days, which is 14 days longer than last year.

Certain markets have seen a significant slowdown, like Raleigh, NC, where listings linger a whole month longer than last year.

“Fewer homes are selling as buyer demand has dipped a bit,” says real estate agent Ryan Fitzgerald, of North Carolina’s Raleigh Realty. “This has created a larger number of homes for sale. And the increase in inventory is starting to put some downward pressure on pricing.”

Yet even in slow markets like Raleigh, multiple buyers will fight to scoop up a home if the price is right.

“We are still seeing multiple-offer situations and over-asking-price offers to win homes that are properly priced and in good locations,” says Fitzgerald. “This past week, we had a few clients win and lose in multiple-offer situations.”

A new solution to America’s housing shortage

Despite this seemingly intractable real estate gridlock, cracks are appearing that could move the housing market. And the break might come even without sellers listing their homes at all.

“Fortunately, builders are trying to pick up the slack, with new-home sales up and nearly back to pre-pandemic highs,” adds Hale. “So home shoppers frustrated by the lack of options might consider looking at new homes rather than existing homes.”

New construction has a distinct advantage in today’s market, in fact, because they typically work with preferred lenders that can offer lower mortgage interest rates. Many are also extremely willing to offer other discounts, which can place the final price tag below that of a pre-existing home.

New homes are going up at a breakneck pace, particularly in the South, says Hale. “Single-family housing starts in the South over the last 12 months are up over the pre-pandemic average.”

Fitzgerald agrees that new construction might be the “best bet” for some frustrated buyers.

“Builders are pricing their inventory fairly and are building floor plans to suit today’s buyers’ needs,” he says.

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