Real estate experts interviewed by Realtor.com® admit that the market isn't getting worse, but it's not getting better either. It's like a car stuck in a quagmire of high mortgage rates and low inventory, spinning its wheels. It's not sinking further into the quagmire, but it's not pulling itself out either.

Devyn Bachman, senior vice president of research at John Burns Research and Consulting, says, "The housing market is at an impasse." Things are changing, but they are changing very slowly and ineffectively as mortgage rates remain high."

The new home market is doing much better than the resale market. This may be because some builders have been able to lower mortgage rates for homebuyers who would otherwise be at around 7 per cent.

However, builders have not been able to build homes fast enough to alleviate the housing shortage, which has reached crisis proportions. Adding to the problem are homeowners, most of whom are reluctant to put their properties on the market.

There are now many more people buying homes than there are selling them, which is why bidding wars continue to erupt across the country.

Sales have plummeted due to the lack of inventory. According to the National Association of Realtors®, existing home sales spiked to 6.12 million in 2021 when mortgage rates fell to record lows of around 2% and COVID-19 Pandemic buyers flooded the market.

The following year, mortgage rates spiked, once topping 7 per cent, and sales fell to 5.03 million. This year, sales are projected at 4.16 million, a 17.3 per cent drop from 2022.

The housing market will only rebound if more homes come on the market. That won't happen until mortgage rates fall to the "magic" median range of 5 per cent, Bachmann said.

Interest rates are expected to remain high until the Federal Reserve Board decides to stop raising rates to fight inflation and eventually bring them back down.

Right now, many homeowners don't want to sell their homes or give up the ultra-low mortgage rates between 2% and 3% they got during the pandemic. Once mortgage rates drop, they may be more willing to sell their homes and buy new ones. This is expected to get the housing market moving again and increase sales.

You can't buy what's not for sale," said Odeta Kushi, deputy chief economist at First American Financial Corp. a title and settlement company that provides data and analysis. If interest rates go down, the equation changes for a lot of people."

Typically, a nearly twofold increase in mortgage rates in such a short period of time would cause home prices to fall. There is only so much a homebuyer can afford to spend on monthly payments - in July the monthly payment for the same property was more than double what it was three years ago*.

Many homebuyers are being forced to move further away, buy smaller homes, or buy fixer-uppers because they can no longer afford homes that were in their price range just a few years ago. Other would-be homebuyers are also being turned away.

Declining demand and rising interest rates should have pushed home prices down. But home prices fell just 0.9 per cent in July from a year earlier, according to the latest data from Realtor.com.

There's nothing normal about this market, Kush said.

There are too many millennials at the peak of their home-buying years who are determined to keep buying homes despite the economic challenges.

There are fewer shoppers out there than there have been in the last few years, but the supply (of housing) is down even more. "It makes the market feel hotter than it really is," says Ali Wolf, chief economist at construction consulting firm Zonda. The few listings that are available are selling quickly at or above list price."

Homeowners who list their properties for sale today are typically doing so because they need to put their property on the market. These homeowners may be going through a divorce, have had a death in the family, are relocating for work, need more space to accommodate a new child or aging parent moving in, or are moving for retirement.

However, these properties are not enough to bring the property market back to life.

"In order for the market to recover, we need more inventory. We can only get more inventory if mortgage rates fall," said Bachman.

The bright spot in today's real estate market is new residential construction. Some builders are prioritising smaller, more affordable homes. These homes are especially attractive to first-time buyers.

Additionally, builders are more likely to make a sale through a price reduction than homeowners, who are less attached to their homes. They can also offer a variety of incentives such as larger lots, nicer finishes, and upgrades throughout the property.

Perhaps most importantly, large builders also usually have access to financing. This makes it easier to temporarily or even permanently lower mortgage rates in some cases.

Says Bachman, "New construction has turned around, but the resale market has stalled." Builders can offer better deals now."

Robert Dietz, chief economist for the National Association of Home Builders, noted that the number of permits approved for new single-family homes has risen every month so far this year. However, the number of permits is still slightly lower than this time last year.

Dietz warns that the new home market is still likely to slow down as interest rates on development and new construction loans increase. If mortgage rates continue to rise, that could also hurt new construction.

As [mortgage] rates moved higher in July, some potential buyers were pushed out of the market, reducing buyer traffic for builders, he said.

* The calculation compares the national median list price for July 2020 and July 2023 from Realtor.com. The calculation also considers the average weekly mortgage rate for 30-year fixed loans offered by Freddie Mac for 2020 and early August 2023. The calculations assume a 20% down payment by the homebuyer and do not include property taxes, insurance, homeowners' association dues or other fees.