Los Angeles, California
Looking ahead to a new year and a new administration, understanding market pressures can give insights into what we can expect mortgage rates to look like in 2021 and further into the future. These types of outlooks can help individuals decide when to buy, when to wait, and when to refinance.
Forecasts into the 2021 and 2022 year’s mortgage rates are of course just predictions; it is impossible to know for certain what any market will do. In fact, if 2020 has taught us anything, it is the unpredictability of markets and the various forces that impact the economy. The good news is that there are large firms that make economic predictions and forecasts about the future of the mortgage market including interest rates, mortgage originations, and home sales.
Mortgage Rates
Fannie Mae predicts average rates for the 30-year fixed loan will remain at 2.8% through 2021 and only rise to 2.9% for 2022. The Mortgage Bankers Association (MBA) is more conservative than Fannie Mae, predicting the 30-year fixed rate mortgage will go from 2.9% in the current quarter to 3.3% one year from now and to 3.6% by the end of 2022. Looking at 30-year mortgage rate forecasts for 2021 from six industry leaders: Fannie Mae, Freddie Mac, the Mortgage Bankers Association, the National Associations of Realtors and Home Builders, and Wells Fargo, mortgage rates forecasts were overall very favorable, averaging just 3.03% for next year. This is just above current rates which hit record lows in 2020.
Mortgage Origination and Home Sales
The Government Sponsored Enterprise’s November forecast called for $4.12 trillion in mortgage originations this year, up from $4.08 trillion in the October outlook. Prices of existing homes are expected to rise 2.7% in 2021, which is a slower rise than the 5.8% increase experienced in 2020. However, even as home prices decelerate, home sales are expected to pick up. Some 6.323 million existing homes are expected to be sold in 2021, a 4.7% increase over 2020. Of course, individuals who kept their jobs and their incomes in the pandemic are in a better position to buy a home in 2021.
Political Impact
The MBA’s chief economist, Mike Fratantoni, recently said he expects mortgage rates to go even higher if both Senate seats in Georgia flip to the Democrats after January’s runoff election. A wave of foreclosures is likely to begin in 2021 unless lenders, nonprofits and the federal government coordinate effectively to prevent it. This is because the Centers for Disease Control and Prevention ordered a temporary halt on evictions for nonpayment of rent, an order which is set to expire December 31, 2020. Furthermore, the eviction moratorium means that many landlords are suffering financially; by January, tenants will owe landlords up to $34 billion in past-due rent, according to the National Council of State Housing Agencies. Up to 8 million households may be behind on rent payments, putting them at risk of eviction. How the new administration reacts to these market forces may determine how severe the consequences are for millions of Americans and for the housing market in general.
Product Expansion
Covid-19 also brought tightening of guidelines and the elimination of many products early in the Pandemic. Lenders will continue to look for ways to mitigate the risk of lending to borrowers, who may be experiencing lower income or possible layoffs or job reductions as the realities of shutdowns spread. On the other side many of the Non-QM (alternative lenders) who exited the market in March and April, have come back and we are seeing the return of programs that qualify homeowners with alternative forms of income documentation. Our economy is resilient and creative, and lenders will look for ways to finance entrepreneurs and self-employed owners and professionals.
In conclusion, moving into 2021 the COVID-19 pandemic will continue to touch every corner of the housing market. It will keep mortgage rates low and affect who will be able to buy homes and who will be able to stay in their homes, the financial basics will continue to be important, save money, keep your credit clean and continue working!
SMPL Mortgage is a generational lending leader in mortgage financing. We simplify this complex process through education, seminars, and a personal approach that meets our clients’ needs. We will work with you to determine the best move, considering your personal financial situation within the context of the greater housing market and political climate. Reach out to us here for a complimentary consultation.
