Contracts to buy previously owned U.S. homes unexpectedly dropped in December as low mortgage rates were offset by a shortage of properties for sale.

The National Association of Realtors said on Wednesday its pending home sales index declined 4.9% to a reading of 103.2. November's index was unrevised. Compared to one year ago, pending sales were up 4.6%.

Economists polled by Reuters had forecast pending home sales increasing 0.5% in December. Pending home contracts are seen as a forward-looking indicator for the wellbeing of the housing market because they become sales within a couple of months.

The housing sector has largely regained momentum following a slump in 2018 through the first half of 2019 and its current strength has been supported by low mortgage rates and an unemployment rate near a 50-year low.

The U.S. Federal Reserve cut interest rates three times last year, providing a boon to housing. The Fed is expected to keep interest rates unchanged when it announces its latest policy decision later on Wednesday and has signaled it hopes to hold rates steady for the foreseeable future.

In December, contracts fell across all the nation's four regions. Pending sales dropped 5.5% in the South and 5.4% in the West. They fell 4.0% in the Northeast and 3.6% in the Midwest.

"The state of housing in 2020 will depend on whether home builders bring more affordable homes to the market," NAR chief economist Lawrence Yun said in a statement. "Home prices and even rents are increasing too rapidly, and more inventory would help correct the problem and slow price gains." (Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci)