Home prices just hit a record high. Here are 4 things to know about housing

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Home prices hit a record high in May even as home sales fell. High interest rates are keeping many would-be buyers and sellers on the sidelines. / Getty Images North America

It's a tough time to buy a home.

Home prices jumped to a record high last month, according to data out this week. Elevated mortgage rates kept many would-be buyers and sellers on the sidelines — and the lack of homes for sale is driving up prices for homes that are on the market.

Here are four things to know about the current housing market.

Not many people are buying — or selling

May is typically peak season for buying and selling houses. But fewer existing homes were sold last month than in April. And sales were down 2.8% from a year ago, according to the National Association of Realtors.

A key reason is the elevated mortgage rates across the country. They have made it more expensive to buy a house, pushing some would-be buyers out of the market. In addition, many people who already own homes are reluctant to sell, since that would mean giving up their current, cheaper mortgage.

The relatively few homes that are selling are typically going for higher prices. The median price of a home sold in May was $419,300 — an all-time record.

Average home prices are climbing because the more affordable end of the market, including starter homes, has largely dried up.

"At lower price points, people are being priced out of the home-buying market, and there's just less inventory when we think about homes that are under $250,000," says Jessica Lautz, deputy chief economist for the Realtors association.

At least interest rates are not as high as they were

There is some good news: Interest rates have fallen slightly in recent weeks. The average rate on a 30-year mortgage this week was 6.87%, according to Freddie Mac, down from 7.2% in early May. And mortgage rates could fall further if the Federal Reserve decides to cut borrowing costs later this year.

Still, rates are more than twice as high as they were before the pandemic. Higher interest rates, along with higher home prices have dramatically increased the monthly payment required to buy a home today.

A few more 'For Sale' signs are popping up

There's other promising news. While the number of existing homes on the market is still low by historical standards, it is inching up. According to the Realtors association, there were 1.28 million homes for sale at the end up May — 18.5% more than a year ago.

While higher interest rates have kept many homeowners feeling "locked in" to their current home, eventually life events can force some people to move.

"Perhaps they have a new job or a new baby or a family change," Lautz says. "We're seeing new inventory come into the market because of these traits."

But builders are no longer coming to the rescue

The shortage of existing homes on the market has created an opening for builders, and for a time newly-built houses were helping to fill the gap in the market. In April, nearly a third of all homes for sale were newly built — compared to 13% before the pandemic.

New home construction is slowing, however, which could worsen the shortage of homes for sale. Builders broke ground on 5.2% fewer single-family homes in May than they did in April. Building permits for future construction were also down 2.9%.