Douglas and Melanie Sedam
In 2021, mortgage rates will rise from record lows, home-price gains will slow, and Americans will continue their migration to less dense regions and lower-cost housing markets.
That is according to housing experts who spoke during last week’s virtual conference of the National Association of Real Estate Editors.
Trend 1: Mortgage Rates Will Edge Up in 2021
Mortgage rates have fallen to new lows, hitting yet another record last week. However, as the economy improves and the coronavirus pandemic fades, rates will trend up, housing economists say.
The National Association of Realtors expects mortgage rates to average 3.1 percent in 2021, up 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. However, the refinancing window will not close entirely. Some 20 million Americans have loans at rates higher than 4 percent and many of them to refinance in 2021, even if rates tick upward.
Trend 2: Home Prices Will Keep Rising, But Not as Quickly
Home values have soared this year, a result of rock-bottom mortgage rates, limited supply of homes for sale and strong demand.
Housing economists expect price gains to slow in 2021. CoreLogic reports a 7.3 percent gain in prices nationally in the 12 months ending in October. That pace should cool to 4.1 percent in 2021.
NAR expects home price gains of 3 percent in 2021. The sharp rise in home prices this year has created renewed fears of a tightening squeeze on affordability.
Trend 3: Americans Are Flocking to the ‘Burbs
The COVID pandemic has sparked debate about the fate of cities. For now, Americans’ are moving from urban centers to suburbs and smaller cities. This was an acceleration of a trend that was already in place. Long-neglected Midwest markets could see new demand. People are moving from high-cost markets like California to Arizona, Texas, and Florida.
With Americans spending more time at home, many buyers are looking for bigger homes with home offices, home gyms, and spacious yards. Even some people who were very content with their home before the pandemic are now saying, ‘My home is too small.’”
Trend 4: Some Homeowners Will Struggle, But the Pain Will Be Muted
A decade of job gains disappeared in the first month of the coronavirus recession, but the U.S. labor market has recovered many of the job losses.
Hypothetically, even if there was to be some price decline of say 5 percent, the housing market can easily absorb that so it will not cause foreclosure problems. Struggling homeowners will be able to sell their way out of trouble.
A chronic shortage of homes for sale and under construction is propping up prices.
We will see the foreclosure numbers increase. But it is important to remember where we are starting from i.e., a 40-year low in foreclosure rates right now. They are going to go somewhat higher, but because of the equity positions many homeowners have, you’re just not going to see them get to foreclosure.”
Trend 5: The VA Loan Market Is on Fire
The volume of mortgages backed by the U.S. Department of Veterans Affairs has exploded. The year 2020 was the biggest year in the history of VA lending.
VA loan volume nearly doubled from 2019 to 2020. It was the first time the VA has issued more than 1 million loans in a year.
Younger veterans are driving demand, as VA loans require no down payment and have loose requirements around credit scores, allowing veterans to accelerate their home-buying schedules. They do not need to spend years saving a down payment. They do not need to build pristine credit. They are able to jump into the housing market well ahead of their civilian counterparts.
VA loans once were an afterthought, making up just 2 percent of overall loan volume. VA loans now are about 10 percent of the mortgage market and have shed the perception that they were “inferior” to other types of mortgages.