With mortgage rates at 23-year highs and record home prices, the U.S. housing market is bracing for what economists expect to be a "prolonged freeze" in 2023 and beyond.

According to Chen Zhao, Redfin’s economics research lead, this year is on track for 4.1 million existing-home sales—the lowest since the subprime mortgage crisis in 2007-2008.

She believes the slowdown may continue next year due to elevated mortgage rates. “We’re in for a fairly prolonged freeze,” she said.

Although the slowdown echoes the lead-up to the subprime crisis, its drivers are nothing like 2008.

Instead of a deep recession and foreclosures, today's slump results from skyrocketing home prices, record-low housing inventory, and a sharp rise in mortgage rates.

“We will not have a repeat of the 2008–2012 housing market crash,” said Lawrence Yun, chief economist of the National Association of Realtors (NAR).

“There are no risky subprime mortgages that could implode, nor the combination of a massive oversupply and overproduction of homes.”

Last week, the average rate on a 30-year fixed mortgage reached 7.57%, marking a half-point increase since August. This hike further deterred potential buyers, leading to the lowest level of home sales since January.

According to the Mortgage Bankers Association, mortgages for home purchases fell in September to their lowest levels since 1995, yet another indication of a depressed housing market.

Affordability challenges and their ripple effects

Affordability issues compound the problem of slowing home sales, as rising mortgage rates have not been met with falling prices.

Because home prices remain high, homeowners who purchased or refinanced at lower rates are reluctant to sell. This reluctance has led to a scarcity of homes, with housing supply dropping to 24-year lows during the summer, according to the NAR.

“Buyers still struggle with the triple threat of rising listing prices, record-high mortgage rates, and limited inventory, making affordability a continued concern,” said Realtor.com chief economist Danielle Hale.

As a result, home affordability reached its lowest level since 1985 during the summer, making homeownership increasingly elusive, especially in high-priced markets.

But affordability isn't only the homebuyer's problem; It's also affecting home builders.

In September, home builder confidence dropped for the second consecutive month, according to the National Association of Home Builders. That urges builders to pull back on new construction, further exacerbating the supply problem.

Not the best time to buy

The prolonged wait for more favorable conditions continues to weigh on potential buyers.

In fact, only 16% of consumers believe it's a good time to buy a home, matching a record low dating back to mid-2010, according to a Fannie Mae survey. However, the longer they wait, the harder it gets with rising interest rates and home prices.

“Definitely, inventory seems really limited. We’ve found the longer we’re waiting, interest rates have kept going up, and home prices have kept increasing, so it’s getting harder and harder,” said would-be homebuyers Yonatan Hochstein and his wife in an interview with The Wall Street Journal.

If economists are right about the market freeze, however, homebuyers may soon see the tables turn in their favor.