The housing market has come to a standstill due to high mortgage rates (which topped 7% last month). Buyers can't afford to buy homes, sellers don't want to sell, and the number of available homes remains woefully low. This shortage has caused home prices to rise again, forcing many would-be homebuyers to put their American dream on hold.

Mark Zandi, chief economist at Moody's Analytics, said the housing market is "weak and moving fast."

Mark Zandi, chief economist at Moody's Analytics, said, "I don't think the housing market is going to get better. But I also don't think it's going to get worse - because it can't get any worse.

Home sales are down sharply this year due to the small number of homes available for purchase. Most sellers are also buyers, so they don't want to give up the super low mortgage rates they got during the COVID-19 pandemic to buy a new home at a higher rate. As a result, they are staying put until interest rates come back down. This has exacerbated the housing inventory crisis, keeping home prices high and leading to bidding wars and bids over asking prices as buyers compete for the limited number of homes for sale.

The average mortgage rate for a 30-year fixed-rate loan was 7.12 per cent in the week ending 7 September, according to Freddie Mac. That's up from 5.89 per cent a year ago and 2.88 per cent two years ago.

What were the results? According to an analysis by Realtor.com®, monthly mortgage payments are about 90% higher today than they were two years ago.

Housing is simply not affordable at 7% mortgage rates, says Zandi.

Ironically, high mortgage rates and home prices are the result of the Federal Reserve Board's attempts to lower home prices. Since last year, the Fed has been raising its own short-term interest rates to tame inflation. Generally, mortgage rates move in line with the Fed's interest rates. Therefore, when the Fed raises rates, mortgage rates tend to rise.

It's unclear whether the Fed is done tightening, whether mortgage rates could come back down a bit, or whether there will be more rate hikes.

The National Association of Home Builders (National Association of Home Builders) chief economist Robert Dietz (Robert Dietz) said of the autumn real estate market, "the real estate market will face difficulties and challenges. Those who have not yet been squeezed out of the market face limited options."

It's not all bleak. the number of homes coming onto the Realtor.com website increased slightly in August. New home sales are strong. In addition, there is historically less competition for homes in the autumn. Families with children in school have generally moved out, and many renters have renewed their leases.

"Every fall presents such an opportunity for buyers," said Danielle Hale, Realtor.com® Chief Economist. "I wouldn't say inventory has recovered, but it's a step in the right direction."

Many economists expect mortgage rates to remain around 7% this autumn.

We do expect mortgage rates to fall, but exactly when is difficult to determine," Hale said." They probably won't fall this autumn. It could be later this year or even next year.

The good news for homebuyers is that mortgage rates will fall once the Fed completes its major anti-inflation initiatives. If the economy tanks as a result of the rate hike, the Fed will likely adjust the rate hike downward.

But that doesn't mean homebuyers should hold their breath for lower rates. Dietz expects rates to fall to about 6 percent by the end of next year.

For now, expect the Fed to keep rates steady or even raise them again. Even then, mortgage rates are not expected to rise significantly or reach double digits.

We're probably close to the peak of mortgage rates now, Dietz said.

Home buyers can't seem to win. Home prices had just started to decline and now they're rising again.

They should take solace in the fact that the sharp increases in home prices seen during the pandemic seem to be behind them. Most real estate experts don't expect home prices to rise significantly, and some even think they may fall again.

Moody's Zandi expects house prices to fall this autumn, but not by much. By this time next year, he expects home prices to be down a few percentage points - not 30 per cent, as they were during the Great Recession.

Zandi says, "Current home prices are completely unaffordable." Sellers are going to have to lower their prices if they want to start selling their homes."

Hale expects home prices to "basically go sideways" and remain at current levels.

Meanwhile, others expect home prices to rise slightly from last year, by single digits.

Molly Boesel, chief economist at real estate data firm CoreLogic, said, "House price increases should be fairly modest compared to the past few years. But high mortgage rates mean homebuyers' monthly payments will be quite high."

As homeowners are not giving up their homes, new homes are becoming a bigger part of the property market. With so few homes on the resale market, more and more buyers are turning to newly built homes.

According to the NAHB, nearly one-third of the homes for sale in July were new construction. Historically, new construction has accounted for only about 10 to 15 percent of the market.

That actually reflects how limited the number of existing homes for sale is, Dietz said. For homeowners, why put their homes on the market and lose out on low mortgage rates when they can stay put?

The price gap between homes on the new and resale markets is also narrowing. According to the latest data from the government and the National Association of Realtors®, the median price of a new home in July was $436,700, while the median price of an existing home was $406,700 - a difference of only $30,000 between the two.

Additionally, builders are often able to reduce mortgage rates either permanently or with a buyout. This can save homebuyers significant money, even if the savings are only temporary.

(For example, a "3-2-1 buyout rate" means that the seller pays a lower rate for the first three years of the mortgage. If the current mortgage rate is 7%, the borrower would pay 4% (3 percentage points lower) for the first year of the loan, 5% for the second year, and 6% for the third year. (The rate would then revert to 7% for the remainder of the loan term).

Who is still buying homes today?

So who is buying homes in this market? Those who have to buy a home.

Hale says, "There is a strong need for homebuyers who are dabbling in this challenging real estate market to purchase a home." Anyone with flexibility in the timing of their home purchase may be waiting.

Most of today's buyers are people who have had to move for family or professional reasons. They may have a new child on the way, or an aging parent or adult child moving in with them and needing extra space. It is also possible that they had to move because of a divorce or death. In addition, remote workers who can still afford to trade in their more expensive city for a cheaper one are still looking for housing.

Zandi says, "Homeowners need to sell their homes at some point." They don't want to move if they can help it, but at some point, there's nothing they can do."

* Calculations compare national median home listing prices for August 2021 and August 2023 on Realtor.com. Calculations also include weekly average mortgage rates for 30-year fixed-rate loans as of 2 September 2021 vs. 31 August 2023 from Freddie Mac. Average weekly mortgage rates are from Freddie Mac. Assumes a 20% down payment by the homebuyer and excludes property taxes, insurance and homeowners' association fees.