In its forecast, Fannie Mae expects this year’s rates to be even lower at just 3.7%, while five-year adjustable rate mortgages are likely to hold at 3.3%.

Match that with “strong labor markets, rising wages and improved household balance sheets,” and conditions look perfect for prospective homebuyers. Yet the usual hitch remains: There’s never enough homes on the market.

In short supply

“It’s still a seller’s market because the growth in supply, while it’s accelerating, still hasn’t caught up to the growth in demand,” Doug Duncan, Fannie Mae senior vice-president and chief economist, tells MoneySure.

He adds that the near-record number of adult children living at home will eventually try to get their own places, meaning demand will only continue to surge.

“Boomers are not moving, so the existing home supply is still at very low levels,” he says.

In its outlook released Jan. 21, Fannie Mae notes that the number of homes for sale was down 5.7% in November compared to the year before, making it the scantest November in at least 20 years.

With such a tight supply smothering the demand, the company expects 2020 to be “comparatively muted” for sales of new homes after a brisk 2019.

What buyers can expect

An agent shows a young family a house for sale.
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So if you're shopping for a home this year, there’s a good chance you may encounter a bidding war. And if you’re putting your house on the market, congratulations: You might see the same.

Despite the dearth of available homes, the Mortgage Bankers Association recently reported that homebuyer demand for mortgages hit its highest level in more than a decade.

And while the number of purchases remains flat, Fannie Mae says all of those factors — meager supply coupled with a strong job market spurring demand — are sending prices skyward and shattering loan limits.

The U.S. median price for an existing home in November was $271,300, up 5.4% from the same month the year before, according to the National Association of Realtors. That marks 93 straight months of gains.

The decline in interest rates is partly responsible, Duncan explains. Lower rates mean people can take out bigger mortgages while keeping their monthly payments the same.

“That ends up pushing up house prices, because people end up bidding a little more,” he says.

Use the calculator below to see the kind of monthly payment you can expect for the U.S. median home price near you:

A comeback year

A roofer gets to work building a house.
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Builders are reportedly standing by to capitalize on these trends. Fannie Mae expects the demand to inspire enough builds this year to return housing construction to prominence as a driver of the country’s economic growth.

Its theme for this "comeback" year: "A Resilient Economy Overcomes Risks to Drive Housing."

“If employment stays strong and income growth stays strong and house-price appreciation is strong, those are all incentives for builders to build as fast as they can,” says Duncan, noting a new emphasis on building smaller, entry-level homes.

Pointing to a sign of things to come, Fannie Mae says the number of single-family houses started, as well as the number of permits issued, rose in December to new highs, continuing recent upward trends.

Duncan says it’s “very doubtful” homebuilders will actually be able to keep up and use all their permits due to the bottleneck of skilled labor in the country — but they’ll certainly try. Even if the country were to slip into a recession in years to come, he says, builders will have more than enough incentive to keep building.

“Demand for housing doesn’t fall so much as slow down.”