Homebuyers who were able to buy over the past years or owners who locked in dramatically low mortgage rates by refinancing are not selling as those same rates climb.

“That's going to continue likely for the rest of this year, as affordability challenges really reign [over] buyers' budgets and sellers' decisions on whether or not to list their homes,” Zillow Economist Nicole Bachaud told Yahoo Finance Live (video above).

The housing market is in the midst of a major shift as the Federal Reserve continues to hike its benchmanr interest rate to tame inflation. The Federal Reserve’s actions don’t move mortgage rates directly, but these rates tend to move in lockstep with the 10-year treasury yield.

The central bank’s swift moves has pushed the 30-year fixed mortgage rate over 7%, according to Freddie Mac, crushing demand as housing affordability sinks to its worst level in over three decades.

Higher rates continue to be a burden for first-time homebuyers as they pay significantly more to get a mortgage on a median-priced home. The rapid ascent in demand has driven home sales for new single-family homes to a new low, the Department of Housing and Urban Development and the Census Bureau reported Tuesday.

The slowdown in new home sales underscores how quickly both demand from buyers and sellers has withered following the pandemic-induced frenzy. While prices are still up year over year, they’re slowing at a record pace.

The average sales price was $517,700, down from $521,800 reported in August, according to the Census Bureau. The number of existing homes for sale dwindled to an annualized pace of 4.71 million, data from the National Association of Realtors showed.

“Now that affordability has started to hit both buyers and sellers, we're seeing a lot of existing homeowners locked into their current interest rates,” Bachaud said.

Even with the deceleration, homeowners are choosing not to put their homes on the market. Data from Fannie Mae’s housing survey found that the Home Purchase Sentiment Index fell in September as higher interest rates squeeze affordability.