Mortgage rates to home prices: 8 housing predictions for 2021

·Reporter
·7 min read

Following a year when home equity wealth reached an all-time high — while up to 14 million Americans received a temporary pause from evictions — 2021 will continue some housing trends from 2020, while others will fade away.

New ones will pop up, too, according to experts.

Home prices and sales likely will maintain their 2020 momentum, while refinances should taper off as mortgage rates move off historical lows. The ramifications of coronavirus evictions could provide new housing stock, as builders ramp up activity in the now-hot suburbs.

Here’s what else to expect from housing this year.

The ramifications of coronavirus evictions will provide new housing stock, as builders ramp up activity in the now-hot suburbs. (Source: Getty Creative)
The ramifications of coronavirus evictions will provide new housing stock, as builders ramp up activity in the now-hot suburbs. (Source: Getty Creative)

Home prices will go up

In 2020, median listing prices grew 13.3%, according to Realtor.com, a real estate listing site, while the median existing-home price for all housing types in November was $310,800, up 14.6% from year before, according to the most recent statistics from the National Association of Realtors. Prices increased in every region.

Experts forecast prices again will stay on an upward track.

Read more: Here's what to do if you plan to buy a house in 2021

“As we wrapped up [2020], housing demand continued to be strong, and asking prices continued to post double-digit percent gains over last year, suggesting additional increases are ahead for the Case-Shiller Index,” said Danielle Hale, chief economist at Realtor.com. “Looking ahead to 2021, the economy will be kept in recovery mode thanks to the recent stimulus bill and additional construction of affordable homes in the coming year.”

Housing sales growth will be largest since 1980s

Home For Sale Real Estate Sign and Beautiful New House.
Even if home prices rise, that won’t dampen home sales. In fact, growth in home sales in 2021 could be the largest since the 1980s, according to Matthew Speakman, economist at Zillow.com. (Source: Getty Creative)

Even if home prices rise, that won’t dampen home sales. In fact, growth in home sales in 2021 could be the largest since the 1980s, according to Matthew Speakman, economist at Zillow.com.

“The swell of millennial buyers — with the also enormous Gen Z cohort right behind them — aging into their prime home-buying years and looking to enter the market should also keep demand firm and prompt steady growth in household formation,” Speakman said.

Refinance volume will decrease

Historically low rates fueled a refinance boom last year. The average 30-fixed year mortgage rate hit a record low 16 times in 2020.

At the time, some lenders reported origination volume up to four times than normal. Overwhelmed lenders even offered rates that averaged higher than those recorded by Freddie Mac to quell the volume.

The Mortgage Bankers Association’s refinance activity index was 100% higher than a year earlier for the last week in December.

Read more: Mortgage rates hit all-time low: Is it time to refinance?

But refinancing should slow down in 2021. By the fourth quarter, refinances are expected to make up just 27% of all mortgage originations, down from 60% in the fourth quarter of 2020, according to a forecast from the Mortgage Bankers Association.

“Refinancing volume should decrease in 2021 largely because everybody already refinanced due to these historically low rates,” said Patrick Boyaggi, CEO of Own Up, a mortgage technology company. “When this vaccine comes into play, interest rates are likely to go up rather than down.”

Mortgage rates will inch slightly higher

Happy young couple husband and wife using laptop computer looking at screen pay bills online in app calculate mortgage investment payment on website planning budget discuss finances sit at home table
Interest rates leveled off at 2.67% on December 31st, according to Freddie Mac, a government sponsored enterprise that backs millions of mortgages. (Source: Getty Creative)

After the 30-fixed year mortgage rate reached 16 record lows last year, rates ended the year at 2.67%, according to Freddie Mac, a government sponsored enterprise that backs millions of mortgages. They dipped slightly lower in the first week of January.

But homeowners should expect rates to inch higher later this year.

Read more: Here's the history 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 they want to secure a low mortgage rate, I would encourage them to do it early in the year,” said Daryl Fairweather, chief economist at Redfin, a real estate brokerage firm. “Rates will increase by a couple tenths this upcoming year.”

Rates are expected to end at 3.2% at the end of 2021, according to MBA’s forecast, down from 2.8% in the fourth quarter of 2020.

Buyers will eye foreclosed properties

A new source of properties may pop up that interests first-time homebuyers and investors: foreclosed homes for sale.

“When the forbearance lifts a lot of investors and first time homebuyers will be able to buy these properties, but prices won’t be similar to 2008 levels,” Fairweather said referring to findings by Redfin real estate agents.

Read more: Buying a foreclosed home: The full breakdown

The CARES Act passed in March 2020 required lenders to postpone mortgage payments up to 180 days to homeowners who experienced a pandemic-induced financial hardship. Homeowners also had the option to receive another 180 days extension if they qualified.

As of January 2021, there are about 2.7 million homeowners in forbearance plans, according to the MBA. If these homeowners continue to struggle after their forbearance plans end, they may end up losing their homes.

Renters will need more help

Taylor Wood and her boyfriend, Ryan Bowser, talk about their financial situation inside their Corvallis, Ore., apartment on Dec. 11, 2020. The family is unsure where they will go if an eviction moratorium is not extended and they are kicked out of their home. (AP Photo/Sara Cline)
Taylor Wood and her boyfriend, Ryan Bowser, talk about their financial situation inside their Corvallis, Ore., apartment on Dec. 11, 2020. The family is unsure where they will go if an eviction moratorium is not extended and they are kicked out of their home. (AP Photo/Sara Cline)

Protections for struggling renters are set to expire this year. The federal eviction moratorium has been extended until the end of January, while renters in multifamily homes backed by government agencies have eviction protections until the end of March.

Still, Congress will need to continue to address the issue of rental evictions, experts said.

Read more: Rental aid: Here's where you can find help in every state

“The problem is that initiatives like rental assistance and eviction protection are temporary Band-Aids that were never meant to be a long-term solution. It's a patch — and nothing more,” said Jeremey Sopko, CEO at Nations Lending Corp., a mortgage lender. “It'll provide temporary relief, but you still need to address the problem at its core, and that problem is a real behemoth: a massive wealth gap and inequality that seems to be getting worse by the day.”

Builders will flock to suburbs

As privately owned housing units in permit areas saw a 14% uptick year-over year in November 2020, according to New Residential Construction data from the Census Bureau, experts expressed larger optimism for housing construction in 2021.

“It’s a really good year for building and I think working from home is going to fuel more residential construction,” Fairweather said. “The strongest demand is single family homes in suburban and rural areas since it’s cheaper for builders and easier to get permits.”

Credit requirements will ease

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For the months ahead, experts predict that credit requirements will stabilize for top lenders.

Last year, banks such as JPMorgan Chase raised its minimum credit score to 700 and required a 20% down payment for most mortgages to hedge against consumer defaults and forbearances during the pandemic.

But experts don’t see tighter credit preventing new homebuyers from entering the market. They also expect the so-called QM patch will remain intact for at least the early part of the year.

Read more: How to get the best mortgage deal

The QM patch — otherwise known as the qualified mortgage rule that was enacted by the CFPB after the financial crisis — required lenders to verify a borrower’s ability to repay their mortgage by making sure their debt-to-income ratio didn’t exceed 43%. Under the QM patch, loans backed by Freddie Mac and Fannie Mae were allowed to exceed that 43% debt-to-income ratio.

In October, the Consumer Finance Protection Bureau extended the patch — it was supposed to expire January 10 — until the qualified mortgage rule is revised and sets a new expiration date.

Dhara Singh is a reporter at Cashay and Yahoo Finance. Follow her on Twitter at @Dsinghx.

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