The real estate market is slowing down, but that doesn't mean home prices are getting more affordable — yet. Actually, prices and rents are still going up.

Why it matters: Perhaps you thought that the real estate market was all about location, location, location. Well, it's actually also about supply, supply, supply. The U.S. doesn't have enough homes to meet demand — even now, as fewer people want to buy in the face of rising mortgage rates.

• "The affordable housing problem is going to stick around no matter what," says Redfin chief economist Daryl Fairweather.
• This is yet another sign of how hard it'll be for the Fed to break the back of rising inflation.

Driving the news: Fresh data from the National Association of Realtors showed that the spring selling season is slow this year, with sales in May down 8.6% from last year.

• At the same time, the median price for an existing home crossed the $400,000 barrier for the first time.
• The number of sales dipped as buyers were scared off by mortgage rates hovering near 6%. And would-be sellers aren't incentivized to move — most are sitting on very low mortgage rates scored during the pandemic refi boom.

Meanwhile, rents are soaring. New rents on single-family homes (which make up half the residential market) were up 14% in May from last year, according to CoreLogic, a real estate analytics firm.

• In Miami, rents were up 41% from last year!
• Another rental report out Wednesday, from Realtor.com, shows median rents up 26.6% from before the pandemic — but a slower rate of increase in recent months.
• Rising mortgage rates could actually put more pressure on the rental market: As first-time buyers put off a new purchase, they'll continue to rely on renting.

Between the lines: In a healthy housing market there should be a four- to six-month supply of homes for sale; that's the length of time it would take to sell off all the inventory.

• Right now we're at a 2.6-month supply, according to the NAR report. Still low, but actually a 33% increase since February, notes Ian Shepherdson, chief economist at Pantheon Macroeconomics.
• Shepherdson is one of the few housing market observers who is betting on home prices falling, rather than just leveling off. In his research note, he explains that after he calculated seasonal adjustments, single-family home prices actually fell slightly in May.
• The market is "grim and will soon be grimmer," he wrote.

Zoom out: Partly because of the role real estate played in the financial crisis, a lot of folks are looking at housing now as a barometer for the overall economy. But we're in a whole different ballgame compared to 2007 — homeowners are sitting on record levels of equity and cheap mortgages.

What to watch: There's a lot of talk of recession risk, and certainly a downturn would impact the housing market. A rise in unemployment could cause an uptick in loan distress — but not to the levels we saw then, thanks to those equity cushions and stronger mortgage underwriting, says Molly Boesel, a principal economist at CoreLogic.