New U.S. home listings were down more than 7% year over year in October and were more than 16% lower than 2019 levels, according to Realtor.com data published Wednesday.

Active inventory rose 7.5% from a year ago, however, signaling a shift in seller behavior compared to this time last year when seller delistings surged in the face of lackluster buyer demand.

“The market is cooling on both sides, but in different ways,” said Danielle Hale, chief economist at the home listings platform, in a press release. “Buyers are stepping back as higher mortgage rates cut into their buying power, while sellers are listing less often without a broad increase in delistings or price cuts.”

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Since late 2022, average 30-year mortgage rates have been roughly double the levels observed over the previous decade as the U.S. economy and housing market were crawling back from a crippling recession — only to then endure the COVID-19 pandemic.

After booming from mid-2020 to mid-2022, the housing market has been in a protracted, sector-specific recession, even as broader economic strength has been robust, experts say.

“Pending home sales are the lowest since 2001. Housing starts are near a 6-year low, and there are far more home sellers than home buyers,” explained Heather Long in an email to Scotsman Guide.

Long is chief economist of Navy Federal Credit Union, a top 20 owner of Ginnie Mae mortgage servicing rights, with a portfolio of about $35 billion in unpaid principal balance as of August. She believes the housing sector is one of several industries, including manufacturing, that have undergone “rolling recessions” in recent years due to a shift to higher interest rates and multiple supply-side shocks to the U.S. economy, among other factors.

“This is another one of those moments,” added Long. “The U.S. residential housing market is in a downturn again.”

The median list price in October of $415,000 was down more than 2% from a year ago, according to Realtor.com, but up nearly 34% from 2019. That figure underscores how years of slow homebuying demand has largely failed to bring down national home prices, though appreciation has slowed considerably from pandemic-era surges.

But the lack of new listings reflects the extent to which mortgage rate lock-in effects are sidelining would-be sellers, who would often subsequently become buyers. At the same time, higher borrowing costs and elevated downpayment requirements have priced out many low- to moderate-income and first-time buyers unable to bridge affordability divides.

Return to functioning market could take five years

“The adjustment is showing up in volumes instead, which is a slower and more persistent form of drag,” said Cristian deRitis, deputy chief economist of Moody’s Analytics.

In a note to Scotsman Guide, deRitis said “lock-in” and “lock-out” effects have made home sales more a matter of necessity than choice.

The result is a pace of housing turnover that remains at historic lows in the post-pandemic era. Existing-home sales have hovered around 30-year lows since 2023 as dynamism in the housing market has taken the hit.

“Trade-up homeowners aren’t buying new homes, which is leaving completed homes unsold on builders’ lots and leaving first-time buyers unable to find starter homes in their price range,” explained deRitis.

The prolonged downturn stands to persist in 2027, leading some industry stakeholders to flag looming liquidity risks for mortgage servicers and lenders, which have seen minimal refinance production during recent years and may face heightened pressure as elevated rates endure in 2027.

Fannie Mae, meanwhile, has projected single-family refinance production of just $430 billion next year on average mortgage rates around 7.5%. The downgrade from earlier forecasts led Fitch Ratings to caution that some large nonbank mortgage companies may be uncomfortably exposed to additional contraction in mortgage production.

DeRitis believes the good news is that high homeowner equity levels and a bottleneck of backed-up purchase demand have put a price floor under the market, even as homebuying demand has remained sluggish for years.

“The bad news is that the return to a well-functioning market is likely to take the better part of the next five years, as demographic headwinds fade,” he said. “For lenders and servicers, the practical takeaway is to plan around a low-turnover baseline rather than wait for a snapback.”