If this summer’s home shopping season seemed quieter than usual, you can blame it on soaring mortgage rates, which exceeded the dreaded 7% threshold in mid-August and are currently hovering at their highest point in two decades.

These rates have paralyzed both homebuyers and sellers and led to what economists are labeling an “inventory crunch,” according to a new Realtor.com® report.

In August, the number of homes for sale plummeted by 7.9% compared with a year earlier. This trend of dwindling listings seems even more stark when compared with the pre-pandemic era of 2017–19, which enjoyed nearly double the number of homes for sale than are available today.

This contraction is happening on both sides of the negotiation table: For homebuyers, rising rates have driven up housing payments past what many can afford. Meanwhile, homeowners who have mortgages at much lower rates are understandably reluctant to give them up.

“This differential has led a lot of homeowners to choose to stay in their homes instead of selling and moving,” says Realtor.com® Chief Economist Danielle Hale, “and is a key contributor to low housing inventory.”

How mortgage rates affect inventory

Interestingly, rising mortgage rates haven’t always stifled real estate sales activity.

In fact, notes Hale, “The number of homes available for sale had climbed in late 2022 and early 2023 as mortgage rates climbed.”

But this trend was bound to hit a breaking point and has recently “lost momentum,” Hale says.

And since the Federal Reserve has signaled that it might raise benchmark interest rates again before the end of the year, many fear that mortgage rates might inch higher still.

Will home prices cool off come fall?

This housing shortage is happening despite the fact that median home prices have cooled from July’s $440,000 to $435,000 in August, although they’re still up compared with a year ago by 0.7%.

But, odds are, prices will remain inflated until more homes hit the market to even out supply and demand.

“Listing prices have been buoyed by scarce inventory,” explains Hale.

Some buyers have skirted this dearth of existing home sales by turning their shopping efforts toward new construction. Yet Hale points out, “While new-home sales have been increasing, construction activity isn’t elevated enough to fully bridge the low inventory gap.”

An ‘uptick’ in new listings

A bright spot on today’s relatively bleak real estate horizon is that seller activity, though low, is showing signs of life.

From July to August, the number of newly listed homes inched up by 3.5%.

“This late-summer increase in newly listed homes is seasonally unusual,” notes Hale in her analysis. So while inventory continues to be in short supply, August’s “unusual uptick in newly listed homes” hopefully signals “a return in seller activity heading toward the fall season, which typically is the best time to buy a home.”

However, many homeowners who do decide to sell don’t seem interested in cutting buyers much of a deal.

“Sellers think that low inventory indicates they will get a higher price,” says Clint LaCour, an agent and principal at LaCour Properties in New Orleans. “But with interest rates at their highest level in many years, buyers are waiting and will only make a move if the house is priced well.”

Cities where the number of listings is growing

Most metropolitan areas were not exactly beacons for homebuyers. Indeed, the number of homes for sale in the 50 largest metro areas in the U.S. dropped by 13% compared with last year, and is 45% below pre-pandemic levels. (Metros include the main city and the surrounding suburbs, towns, and smaller urban areas.)

Yet, despite the listing drought in most metros, several Southern cities saw a downright boom in listings compared with last year, including Memphis, TN (+30.7%), New Orleans (+29.2%), and San Antonio, TX (+18.4%).

Meanwhile, the pace of sales is continuing to slow down. Nationally, typical homes spent 46 days on the market in August, up five days from a year earlier but still shorter than before the COVID-19 pandemic.

“Buyers are taking their time and being more selective,” says LaCour. “As always, houses that are priced correctly are selling. Homes that are sitting on the market are either overpriced, have a condition issue, or a location issue—or sometimes all three.”

As autumn approaches, there’s little hope for an inventory bonanza.

“With many existing-home sellers staying put as mortgage rates have continued to climb, I don’t see this dynamic changing in the coming months,” adds Hale.

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