As current mortgage rates remain higher than the interest rates of most homeowners, the lock-in effect continues to cause low inventory and high prices in the resale market.

The result of less activity in the resale market is boosting market share for the new-home market, with data from NAHB and Zonda in recent months indicating home builders represent roughly 30% of the housing market. Recent trends in mortgage rates and resale activity suggest this trend is unlikely to relent in the short term.

A report from Redfin indicated the number of homes for sale fell 7.1% year over year to 1.4 million in May, the lowest level in the real estate brokerage’s records dating back to 2012. Additionally, Freddie Mac reported the 30-year fixed-rate mortgage averaged 6.67% as of June 22, more than 100 basis points higher than a year ago and much higher than the interest rates between 3% and 5% that many homeowners currently have.

“Potential home buyers have been watching rates closely and are waiting to come off the sidelines,” says Freddie Mac chief economist Sam Khater. “However, inventory challenges persist as the number of existing homes for sale remains very low.”

According to Redfin, the May housing inventory level is 38.6% below the pre-pandemic levels of May 2019, and new listings of homes for sale declined 25.2% year over year in May to the third lowest level on record. The median list price was $419,103 in May, down 3.1% from peak pricing of $432,311 one year earlier.

“Many people think it’s a bad time to buy a home because mortgage rates are high, but they should keep in mind that when rates do ultimately fall many buyers waiting on the sidelines could jump back in,” says Redfin chief economist Daryl Fairweather. “That could lead to more bidding wars since there aren’t enough homes for sale, and heightened competition could push up prices, offsetting some or all of the benefit of lower interest rates.”

While demand and activity is low in the resale market, recent data from Zonda indicates the new-home market continues to defy expectations. According to Zonda, the number of new-home sales in May was 11.2% higher year over year on a seasonally adjusted basis. Home builders are able to compete with the resale market with quick move-in home offerings and the ability to help buyers with mortgage rate buydowns in the current high rate environment.