Mortgage rates dropped to a 13-week low as we entered 2020, but despite the increase in demand it might cause, a huge jump in sales probably isn’t on the horizon.
According to Freddie Mac, the current average rate on a 30-year, fixed-rate mortgage clocks in at just 3.64%—the lowest rate since October. As Freddie Mac’s chief economist Sam Khater explains it, buyer demand should spike as a result.
“Mortgage rates fell to the lowest level in 13 weeks, as investors sought the quality and safety of the U.S. Treasury fixed-income markets,” Khater said. “The drop in mortgage rates—combined with the strong labor market—should propel a continued rise in homebuyer demand.”
Those buyers will likely have a problem finding homes in their price range, though—and that’s due to ongoing supply struggles which, as of data released this week, have reached their worst point in nearly two years.
In fact, according to Realtor.com, national housing inventory dropped a whopping 12% over the year in December, falling by 155,000 listings across the month. The number of newly listed properties also fell, decreasing 11.2% for the same time period.
The supply problems are worse at the entry-level. Inventory on homes under $200,000 fell 18.1% in December, while those priced between $200,000 and $750,000 fell 10.2%. Both increases were larger than the month prior.
On upper-tier properties—those priced over $750,000—inventory dropped 4.4%, a much smaller decrease by far, but still nearly three times the jump seen in November.
The number of for-sale homes dropped the most in big cities in the West: San Jose, California (down 33.1%); Seattle (-31.8%); San Francisco (-30.4%); Sacramento, California (-29.5%); and Phoenix (-29%).
According to Realtor.com’s senior economist George Ratiu, the drops could cause a problem for the expected influx of Millennial buyers this year.
“The market is struggling with a large housing undersupply just as 4.8 million Millennials are reaching 30-years of age in 2020, a prime age for many to purchase their first home,” Ratiu said. “The significant inventory drop we saw in December is a harbinger of the continuing imbalance expected to plague this year’s markets, as the number of homes for sale are poised to reach historically low levels.”
Fortunately, for buyers who can find available listings, inventory shortages have “not yet materialized into significant price gains,” according to Sabrina Speianu, Realtor.com’s senior economic research analyst.
The median list price jumped 3% in December, down from November’s increase of 3.6%. The current median home is priced at $299,950.