The U.S. has been dealing with a housing shortage that drove up home and rental prices. But recent data shows rising rates are impacting home sales — a sign the housing market is cooling.

Per Realtor’s July housing report, the national inventory of active listings rose 30.7% compared to the previous year — the highest increase ever. Traffic to homebuilder websites fell to the lowest level since 2012, and homebuilders are finding themselves stuck with unsold inventory.

Worried about a recession, builders are trying to offload inventory while slowing the pace of new home construction.

• Feeling the pain: The SPDR S&P Homebuilders ETF (NYSE:XHB) — a group of home building and furnishing assets — is down 24% this year.
• Cautioning investors: Homebuilders, including PulteGroup (NYSE:PHM) and D.R. Horton (NYSE:DHI), warned of slowing sales and increased cancellations.

Where it gets worse…

Homebuilders cutting new construction could worsen other parts of the market: affordable housing and rentals. Rising home prices have made housing and rental prices unaffordable to low-income Americans.

Rising rent is a big issue as median U.S. rental rates in May passed $2,000 for the first time ever.

• Full-time working Americans making local minimum wage couldn’t afford a two-bedroom house in any state — Per NLIHC’s Out of Reach report.
• 5.4M households say they’re likely to be evicted or foreclosed in the following two months, according to a June 29 – July 11 Census Bureau survey.

Demanding action: Earlier this week, a coalition of tenant unions called on Biden’s administration to declare a state of emergency on housing. The group wants urgency in regulating rising prices — similar to the administration’s urgency in dealing with gas prices.