The average rate on a 30-year fixed mortgage has been falling for several months now, hitting 6.75% last week, according to the Mortgage Bankers Association.

This week, a new report from Fannie Mae predicted that rates could drop below 6% this year. Typically, lower mortgage rates increase demand, which increases home prices. But there are a few factors that could keep a lid on price increases.

One such factor that could keep home prices from rising too much is if housing supply increases.

“Generally, I expect inventory to rise in 2024 from anemic levels,” said Odeta Kushi, deputy chief economist for First American.

That could happen if mortgage rates drop low enough to encourage existing homeowners with really cheap mortgages to sell, she said. “You know, I don’t expect a drastic increase in existing home inventory but certainly a trickle of existing home inventory as rates continue to come down.”

A bigger factor that’s already been increasing inventory is new construction, according to Charlie Dougherty, senior economist at Wells Fargo.

“Single family construction has been improving, as demand has returned, and as mortgage rates have moved lower,” he said.

Dougherty noted that demand is coming off really low levels, and if the job market cools down, for instance? “Then housing demand, in general, should continue to be fairly sluggish.”

And that would keep a lid on home prices too.