How could I create real-time filtering in this case?

As third-party plugin/library recommendations are not on-topic on this StackExchange, the next best option is a code-based solution. If you can describe why you can’t use a code-based solution I could possibly provide a better answer.

You can accomplish this using some simple JavaScript event listeners on the <select> element. This would require you to be able to add data attributes to the elements for filtering mind you.

<!-- Select filter -->
<label>Category:
    <select id="category-select">
        <option>All Categories</option>
        <option>Category 1</option>
        <option>Category 2</option>
    </select>
</label>


<!-- Templates -->
<div class="template" data-category="Category 1">
    <p>Template 1</p>
</div>
<div class="template" data-category="Category 2">
    <p>Template 2</p>
</div>


<!-- Event handling -->
<script>
    window.addEventListener('load', () => {
        let categorySelect = document.getElementById('category-select');

        // runs code on change of the value of #category-select
        categorySelect.addEventListener('change', (e) => {
            let value = e.target.value;
            let allRows = document.querySelectorAll('.template');
            
            // show all rows if 'All Categories' is selected
            if (value === 'All Categories') {
                allRows.forEach((el) => {
                    el.style.display = 'block';
                });
            } else {
                // sets all rows to hidden first
                allRows.forEach((el) => {
                    el.style.display = 'none';
                });

                // then sets the ones in that category back to shown
                let valueRows = document.querySelectorAll(`.template[data-category="${value}"]`);
                valueRows.forEach((el) => {
                    el.style.display = 'block';
                });
            }
        });
    });
</script>

This will change the results displayed on the page as you select different options in the dropdown menu.