While declining interest rates are generally viewed as good news for consumers, they aren't without their negatives.  Realtor.com's September housing trend report released last week highlights one of them.  Inventories of available homes, which had been recovering from months of record low numbers, have begun to shrink again. Even worse for first-time buyers, the decline is hitting hardest within the lowest price tier.  

Overall inventory was down 2.5 on an annual basis compared to a 1.8 percent annual decline in August, but entry level homes, those priced under $200,000, continued a decline that started in May of 2014.  The supply of homes in that tier for sale in that category declined by 9.8 percent in September.

The largest segment of inventory is in the mid-price range, homes listed between $200,000 and $750,000. Inventory here had enjoyed steady growth for the last 18 months after hitting a record low. However, the increases stalled in September and the report suggests the supply will decline for the first time in October.  This should mean increased competition for the move-up as well as the first-time buyer.

Georg Ratiu, the website's senior economist said, "Buyers looking for their next home have faced the headwinds of tight inventory and a competitive market this year. While lower mortgage rates and the arrival of fall promised a reprieve, conditions continue to tighten as demand remains strong. September inventory trends, especially in the mid-market, may be the canary in the coal mine that we could be headed for even lower levels of inventory in early 2020."

Ratiu continued, "The mid-tier of housing represents nearly 60 percent of homes for sale on the market, making it a solid indicator of how tight inventory levels are in the U.S. After more than a year and a half of solid growth in this segment, we're seeing inventory levels stall out and flat line.  If, or better yet, when inventory in this segment begins to take a downturn, the vast majority of home buyers are going to feel its effects as their options rapidly dwindle."

Inventory in the top tier, homes priced in excess of $750,000 continued to grow in September, up 4.7 percent year-over-year but that too could change.  If low rates continue to fuel strong demand into the fall, pricier inventory could also start to shrink.

The pace of sales is near record highs.  The median time for a property to be on the realtor.com website was 65 days in September compared to 63 days in August and 64 days a year earlier.  Price growth however is slowing. The median list price last month was $305,000, up 4.3 percent on an annual basis. In September of 2018 the rate of appreciation was 7.3 percent.