By mid-2022, as mortgage rates suddenly more than doubled, most housing experts predicted that the booming market would finally cool down, after two years of high demand, skyrocketing home prices, and low inventory heated up the market so much that many aspiring buyers found homes simply unaffordable.

Now nine months later, that prediction has widely come true: Home price gains have been weakening every month since last summer, with the average home price nationwide now down six percent from its June peak as sales have dropped, according to S&P Case-Shiller index of prices in 20 major metro areas.

But despite an improvement in affordability, home prices remain higher than they were this time a year ago. And as demand starts coming back, a continued decline in prices seems less than certain.

“At the moment, I would say the U.S. housing market is going through a period of ‘tug of war’, a bit of conflict between buyers and sellers, in terms of trying to figure out where the equilibrium or the bottom is, in terms of sales or prices or even construction activity,” Cris DeRitis, deputy chief economist at Moody’s Analytics, told Newsweek.

Prices had come down “but they haven’t come down in a straight line,” he added.

“They came down fairly aggressively during summer, but then they leveled off a bit in the autumn. And now most recently, we saw another decline in January. So that to me suggests that there is this ‘tug of war’ between the buyers and the sellers as they deal with the higher interest rate environment.”

According to DeRitis, this struggle between sellers and buyers is to be expected during a housing market correction. “It’s not just an immediate decline, unless you have high unemployment. We’re seeing more of an adjustment rather than a sharp fall,” he said.

A Standoff Between Buyers and Sellers

Higher mortgage rates last year, combined with incredibly expensive homes and a consistent lack of supply which have affected the market since the pandemic times, have led to a drop in sales across the country.

“We went from a mortgage rate of less than 3 percent in 2021 to now being close to 7 percent, six and a half to 7 percent,” said DeRitis. As a result of this, “sales are down significantly, down 36 percent on a year-over-year basis for existing home sales and about 20 percent down year-over-year for new home sales.”

But while homebuyers have been pulling out of the market amid the high mortgage rate environment, so have sellers.

“The high mortgage rate has led to a situation where [sellers] have no incentive to move or to sell their homes. They’ve locked in a very low interest rate, and if it’s fixed for the life of their mortgage, then their payment will never rise unless they sell,” said DeRitis. “And if they sell then they have to buy another home or rent, and at that point they would face much higher costs. So from that standpoint, I see the market as freezing up,” he continued.

“The buyers are receding, because they can’t afford the monthly payments. And then the sellers are also receding, because they have no incentive to sell at this point. And as a result, sales have gone to a very low level.”

DeRitis said that “we are starting to see some signs of life in the housing market,” but it’s too soon to say whether we’ve reached “the bottom” in terms of house sales.