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There tends to be a clear relationship between mortgage rates and home buyer demand.

Case in point: In 2020 and 2021, buyers were clamoring to purchase homes when borrowing rates plunged to record lows. Back then, buyers were so eager that many were willing to purchase homes without even seeing them in person. And during that period, bidding wars were rampant, which drove home prices up even more.

But in 2022, mortgage rates started climbing. And for much of 2023 and 2024, the average 30-year mortgage was above 7%. That pushed many home buyers out of the market. The only reason it didn’t lead to a steep drop in home prices is that inventory remained sluggish during that time.

But there’s a good chance housing inventory will increase in the coming months. So if you’ve been thinking about selling your home, you may want to get moving ASAP.

Why you don’t want to wait too long to sell your home

In August, there was a 4.2-month supply of available homes on the real estate market, according to the National Association of Realtors. But it commonly takes a six-month supply to meet buyer demand.

Getting back to Economics 101, any time there’s a lack of supply, prices tend to go up. It’s for this reason that home prices are as high as they are today.

But as housing inventory increases and supply catches up to demand, home prices are likely to fall. If you want to sell for top dollar, the time to do so is the next few months.

Why is housing inventory expected to pick up? It boils down to mortgage rates. They’ve been falling in recent weeks, and they’re likely to continue falling as the Federal Reserve continues to lower its benchmark interest rate.

Higher mortgage rates have kept many sellers from listing their homes. But as rates fall, sellers are apt to be more willing to get new mortgages, which will only lead to more competition. So if you want to list your home at a time when there’s less competition, now’s your opportunity.

That doesn’t mean you have to list your home this month if you’re not quite ready to sell, or if your home needs repairs before you’re comfortable putting it on the market. But you may want to try to sell before the end of the year so you can benefit from a general lack of competition.

What about a replacement home?

The tricky thing about selling a home is that you’ll need a place to live once it sells. You may be worried about selling now because of the inventory issues just discussed. A lack of inventory gives you an edge as a seller — but it also makes it harder to find a replacement home.

Before you put your home on the market, do some research and make sure there are at least some available homes in your price range. If that’s not the case, then ignore the above advice and wait to sell. It’s not going to do you much good to get a good price for your home only to then wind up with no options for putting a roof over your head.

When selling now makes sense

If you do find that there are replacement homes in your target price range, selling now could be a good bet — especially if you’re downsizing. While you might pay more for a replacement home, just like a buyer might pay more for your home, if you’re downsizing, you could still come out a winner financially.

Say you sell your home for $30,000 more than what you might get during a market with more inventory. You might pay $10,000 more for a smaller home you downsize into. But in this case, you’re still gaining something.

Of course, even with downsizing, you might still need to borrow money to finance a home purchase. But the good news is that mortgages are already more affordable now than they were earlier in the year. And if you shop around for a great deal on a mortgage, you might eke out extra savings. Click here for a list of today’s best mortgage lenders and rates.

In fact, you may want to do your mortgage lender research before listing your home so you’re not left scrambling in case it sells quickly. That may be the case if it’s in great shape and you work with a real estate agent to price it just right.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.