The housing squeeze—one of the main culprits behind record-high home prices—is finally beginning to improve, but that doesn’t necessarily mean housing will become more affordable.

According to real estate data firm Altos Research, 559,700 single-family homes were on the market as of May 3, a 33% spike from a year ago.

Listings have risen by a whopping 133% since early 2022, when housing inventories were at rock bottom. However, inventories are still down from the pre-pandemic levels of around 900,000.

As Altos Research explained, higher inventories give buyers better odds of negotiating lower prices. By their estimates, one in three single-family homes currently on the market have already dropped their prices.

According to Moody’s, the shifting supply-demand balance means home prices are now expected to rise just 1% this year, much lower than the 6.5% increase in 2023.

While these are all positive signs for buyers, inventories are only a small part of the affordability equation. A higher supply isn’t necessarily a good thing if mortgage rates remain high.

It’s all about mortgage rates

A separate Altos Research report predicted that, unless mortgage rates drop and spur new buying demand, housing inventories will continue to rise.

“Unless mortgage rates fall from here, then by July, we project we could have 40% more homes on the market than a year ago,” said Altos’ founder and president, Mike Simonsen.

“If rates fall, let’s say, into the mid or low 6s, then demand will pick up faster than supply, and this inventory growth trend will slow or recede,” he explained.

The problem for homebuyers is that mortgage rates have re-accelerated this year and are once again approaching multi-decade highs.

According to the Mortgage Bankers Association (MBA), 30-year fixed mortgages rose to 7.05% last week, leading to a sharp decline in new loan and refinancing applications.

By comparison, mortgage rates were in the 3-4% range during Covid.

“Borrowers remain sensitive to small increases in rates, impacting the refinance market and keeping purchase applications below last year’s levels,” said Joel Kan, MBA’s vice president and deputy chief economist.

Economists say it’s not just elevated rates that are impacting buyers but how unpredictable they’ve been. Rate volatility is “really the thing that’s going to impact the market the most,” Nicole Bachaud, a senior economist at Zillow, told CNBC.

For that reason, Bachaud expects to see a “later spring season this year,” referring to a delay in expected home sales that usually accompanies the warmer months.