In 2021, the mortgage rates will be Record lows, home price increases will slow and Americans will continue to migrate to less dense regions and lower cost housing markets.
This is what apartment experts say last week at the virtual conference of the National Association of Real Estate Editors.
Trend 1: Mortgage rates will rise slightly in 2021
Mortgage rates have fallen to new lows and hit another record last week. However, as the economy improves and the coronavirus pandemic subsides, interest rates will rise, housing economists say.
The National Association of Realtors expects mortgage rates to average 3.1 percent in 2021, down from 3 percent in 2020. The Mortgage Bankers Association says rates will average 3.3 percent in 2021.
That means the refinancing boom of 2020 should slow dramatically by the second half of 2021, says Michael Fratantoni, chief economist at the Mortgage Bankers Association.
However, the refinancing window will not be closed completely. About 20 million Americans have loans at rates greater than 4 percent, says Frank Nothaft, chief economist at real estate data company CoreLogic. He expects many of them to refinance in 2021, even if interest rates rise.
Trend 2: Home prices will continue to rise, but not as quickly
Property prices have skyrocketed this year due to the lowest mortgage rates, limited supply of homes for sale, and strong demand.
Housing economists expect price increases to slow down in 2021. CoreLogic reports a nationwide price increase of 7.3 percent in the 12 months through October. This pace should cool down to 4.1 percent in 2021, says Nothaft.
NAR expects home prices to rise 3 percent in 2021. The sharp rise in home prices this year has rekindled concerns increased pressure on affordability.
“I just hope real estate prices will rise moderately so that affordability conditions don’t get out of hand,” said Lawrence Yun, chief economist for the National Association of Realtors.
Trend 3: Americans pour into the ‘Bulbs’
The COVID pandemic has sparked a debate about the fate of cities. For now, Americans are moving out of urban centers in suburbs and smaller cities is “clear”, says Robert Dietz, chief economist at the Federal Association of Builders.
“It is an acceleration of existing trends,” says Dietz.
Dietz says the long-neglected markets of the Midwest could see new demand. He named Kansas City, Columbus, and Indianapolis as destinations for shoppers looking for bargains.
“People are moving out of high-cost markets like California,” says Nothaft.
As Americans spend more time at home, many buyers are looking for larger homes with home offices, home gyms, and spacious gardens.
“Even people who were very happy with their home before the pandemic are now saying, ‘My home is too small,'” says Yun.
Trend 4: Some homeowners will struggle, but the pain will be subdued
A decade of job gains was gone in the first month of the coronavirus recession, notes Yun. In this staggering decline, the US labor market has made up for many of the job losses.
“Hypothetically, the housing market can easily absorb this, even if there is a price drop of, for example, 5 percent,” says Yun. “It won’t cause foreclosure problems.”
Yun says struggling homeowners can sell themselves out of trouble.
Rick Sharga, executive vice president at RealtyTrac, also predicts that foreclosures will increase in 2021, but the impact will be manageable. While some homeowners default on payments, most will sell before foreclosure.
“Right now homeowners are sitting at a record level of equity,” says Sharga.
A chronic shortage of homes for sale and under construction is propping up prices.
“We will see the number of foreclosures increase. But it’s important to remember where we start, ”says Fratantoni. “We are currently at a 40-year low in foreclosure rates. You will go a little higher. But because of the equity positions many homeowners have, you just won’t get them for foreclosure. “
Trend 5: The VA credit market is on fire
The volume of US Department of Veterans Affairs-backed mortgages has skyrocketed, says Chris Birk, director of education at Veterans United Home Loans.
“This was a truly historic year,” says Birk. “This was the greatest year in VA credit history.”
The VA’s credit volume almost doubled from 2019 to 2020. It was the first time the VA had issued more than 1 million loans in a year.
Younger veterans are driving demand, says Birk. VA loans do not require a down payment and have loose credit requirements so veterans can expedite their home purchase schedules.
“You don’t have to spend years saving a down payment. You don’t have to build flawless loans, ”says Birk. “They are able to enter the housing market well ahead of their civilian counterparts.”
VA loans used to be a minor matter, making up only 2 percent of the total loan volume. VA loans now make up about 10 percent of the mortgage market, he says. Birk says VA loans have largely lost the impression that they are “inferior” to other types of mortgage.