Home sales and new listings declined on a yearly basis in May as the U.S. housing market continues to perform below pre-pandemic levels, with homebuyers and sellers confronting elevated borrowing costs and macroeconomic uncertainties.

During the calendar year’s historically strongest month for home listings, “sellers pulled back,” with new listings falling more than 4% on a yearly basis, according to data published by Zillow in its monthly housing report for May.

While sales rose about 4.8% from April, they declined nearly 3% from a year ago, the listings platform said, reflecting constraints of mortgage rates that spent most of May above 6.5% for typical 30-year home loans, according to Mortgage Bankers Association (MBA) data.

Overall home sales inventory was only 1% higher over the year, foreshadowing how volatile springtime sales conditions may deteriorate further as the year progresses and global energy and trade shocks linked to the ongoing Iran war sink deeper into the U.S. economy.

“Weekly data suggests [inventory growth] could flatline in the next four weeks,” said Mischa Fisher, chief economist at Zillow, who authored the May housing report. “A June peak for options home shoppers have to choose from would be early on the calendar, possibly foreshadowing slower sales in the second half of the year.”

Even though typical new mortgage payments were 3.1% lower than a year ago in May, they were 1.1% higher than April, signaling the deterioration in affordability that has occurred since the Iran war began in late February. MBA data indicates new mortgage payments were 4.4% higher than prewar levels in April, the latest month for which MBA data is available.

“Affordability remains better than a year ago, but the recent rebound in rates has slowed the momentum buyers carried into spring,” explained Odeta Kushi, deputy chief economist at First American Financial Corp., in a separate look at initial May sales data. However, she described a “new listings gap” as the “clearer driver” of slow sales.

While Zillow reports that, on the inventory side, 1.36 million homes were for sale nationwide in May, data from competing listings platform Realtor.com indicates that new listings were only 2.1% higher in May than a year ago and remained about 19% below May 2019 levels nationwide.

Noting that existing-home sales are much nearer pre-pandemic levels in some markets but “remain deeply constrained” in others, the First American report flagged how new listings help to unlock “both the supply and demand sides of a transaction,” since sellers often become buyers in the same market.

Fewer listings, simply put, represent fewer opportunities to transact. But new listings alone aren’t enough to unlock a U.S. housing market as short of buyers as it is sellers.

The 0.3% monthly increase in existing-home sales in May projected by the title insurance giant should “be kept in perspective,” said Kushi, noting that sales in April were about 18% below pre-pandemic April levels in 2018 and 2019.

“Buyers still need to be able to reach the price of the homes that are listed,” Kushi concluded, which is why new listings are not a direct correlate to higher sales activity. “The monthly payment still has to work.”