Mortgage rates to home prices: 8 housing predictions for 2021
After a year where home wealth reached an all-time high - while up to 14 million Americans were given temporary hiatus from evictions - some real estate trends will continue from 2020 onwards in 2021, while others will disappear.
According to experts, new ones will also appear.
House prices and sales are likely to maintain momentum for 2020, while refinancing should ease as mortgage rates move from historic lows. The effects of the coronavirus clearance could result in a new housing stock as builders step up their activities in the now hot suburbs.
Here's what more to expect from housing this year.
The effects of the coronavirus clearance will create new housing stock as builders step up their activities in the now hot suburbs. (Source: Getty Creative)
Real estate prices will go up
In 2020, average list prices increased 13.3%, according to Realtor.com, a property listing website, while the average inventory property price for all apartment types was $ 310,800 in November, up 14.6% year over year National Association of Realtors statistics. The prices rose in every region.
Experts are forecasting price increases again.
Read More: Here's What To Do If You Want To Buy A Home In 2021
"As we closed , residential demand remained strong and asking prices continued to see double-digit percentage gains year over year, suggesting that the Case-Shiller Index has further increases ahead," said Danielle Hale , Chief Economist at Realtor.com. "Looking ahead to 2021, the economy will remain in recovery mode for the coming year thanks to the latest stimulus package and the additional construction of affordable homes."
Residential sales growth will be greatest since the 1980s
Even if house prices rise, it will not dampen home sales. According to Matthew Speakman, an economist at Zillow.com, the growth in home sales in 2021 could be the largest since the 1980s. (Source: Getty Creative)
Even if house prices rise, it will not dampen home sales. According to Matthew Speakman, an economist at Zillow.com, the growth in home sales in 2021 could be the largest since the 1980s.
"The surge in millennial buyers - with the also huge Gen Z cohort right behind - aging into their early home buying years and looking to enter the market should also keep demand stable and lead to steady growth in household formation," said Speakman.
The refinancing volume is decreasing
Historically low interest rates triggered a refinancing boom last year. The average mortgage rate for 30 fixed years hit a record low 16 times in 2020.
At this point, some lenders reported origination volumes up to four times higher than normal. Overwhelmed lenders even offered interest rates that averaged higher than those recorded by Freddie Mac in an attempt to throttle the volume.
The Mortgage Bankers Association refinancing index was 100% higher for the last week of December than a year earlier.
Read more: Mortgage rates hit all-time lows: is it time for a refinance?
However, refinancing is likely to slow down in 2021. By the fourth quarter, the Mortgage Bankers Association predicts that refinances will only account for 27% of all mortgage origins, up from 60% in the fourth quarter of 2020.
"Funding volumes are likely to decline in 2021 mainly because everyone has already refinanced because of these historically low interest rates," said Patrick Boyaggi, CEO of Own Up, a mortgage technology company. "When this vaccine comes into play, interest rates are likely to rise rather than fall."
The mortgage rates will be a little higher
Interest rates fell to 2.67% on December 31, according to Freddie Mac, a government sponsored company that supports millions of mortgages. (Source: Getty Creative)
After the 30-year mortgage rate hit 16 record lows last year, the rate was 2.67%, according to Freddie Mac, a government-sponsored company that supports millions of mortgages. They went back a little in the first week of January.
But homeowners should expect higher rates later this year.
Read more: Here's the story of the 30 year fixed mortgage rate
“Homeowners should know that the low interest rate environment is as low as mortgage rates will ever get. If you're looking to get a low mortgage rate, I would encourage you to do so earlier this year, ”said Daryl Fairweather, chief economist at Redfin, a real estate agent. "Prices will rise by a few tenths in the coming year."
According to the MBA forecast, interest rates are expected to be 3.2% by the end of 2021, after 2.8% in the fourth quarter of 2020.
Buyers will keep an eye on foreclosed properties
A new source of real estate may emerge of interest to first-time buyers and investors: foreclosed homes for sale.
"If indulgence removes many investors and first-time buyers can purchase these properties, prices will not match 2008 levels," said Fairweather, referring to Redfin real estate agent results.
Read more: Buying a Foreclosed Home: The Complete Breakdown
The CARES bill, passed in March 2020, required lenders to postpone mortgage payments to homeowners suffering from pandemic financial distress for up to 180 days. Homeowners also had the option to get another 180 day extension once they qualified.
According to the MBA, there are around 2.7 million homeowners on forbearance plans as of January 2021. If these homeowners continue to struggle after their forbearance plans are over, they may lose their homes.
Tenants need more help
Taylor Wood and boyfriend Ryan Bowser discuss their financial situation at their Corvallis, Ore apartment on December 11th, 2020. The family is unsure where they will go unless an eviction moratorium is extended and they are kicked out of their home. (AP Photo / Sara Cline)
The protection for ailing tenants expires this year. The federal eviction moratorium has been extended to the end of January, while tenants in apartment buildings supported by government agencies have eviction protection until the end of March.
Nevertheless, Congress must continue to deal with the issue of rental evictions, experts said.
Read more: Rental Assistance: Find Assistance in Each State
“The problem is, initiatives like Rent Assistance and Evacuation Protection are temporary patches that were never intended to be a long-term solution. It's a patch and nothing more, ”said Jeremey Sopko, CEO of Nations Lending Corp., a mortgage lender. "It will bring temporary relief, but you still have to address the core of the problem, and this problem is a monster: a massive wealth gap and inequality that seems to be getting worse every day."
Builders will flock to the suburbs
Since private residential units in approved areas recorded a year-on-year increase of 14% in November 2020, experts expressed greater optimism for residential construction, according to the Census Bureau on the construction of new residential buildings in 2021.
"It's a really good year of construction, and I think working from home will fuel more housing," said Fairweather. "The strongest demand is for single-family homes in suburban and rural areas as they are cheaper and easier for home builders to apply for."
Loan requirements are made easier
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Experts believe that credit requirements for top lenders will stabilize for the coming months.
Last year, banks like JPMorgan Chase raised their minimum loan value to 700 and required a 20% down payment on most mortgages to cover themselves against consumer default and forbearance during the pandemic.
However, experts don't see any tighter credit preventing new homebuyers from entering the market. They also expect the so-called QM patch to remain intact at least at the beginning of the year.
Read more: How to Get the Best Mortgage Deal
The QM patch - also known as the Qualified Mortgage Rule, enacted by the CFPB after the financial crisis - asked lenders to verify a borrower's ability to repay their mortgage by ensuring that their debt to income ratio was 43% did not exceed. As part of the QM patch, the loans secured by Freddie Mac and Fannie Mae were allowed to exceed this debt ratio of 43%.
In October, the Consumer Finance Protection Bureau extended the patch - it was supposed to expire on January 10 - pending a revision of the qualifying mortgage rule and a new expiration date.
Dhara Singh is a reporter at Cashay and Yahoo Finance. Follow her on Twitter at @Dsinghx.
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