After a brief pause at the onset of the coronavirus pandemic, home sales and prices are edging up. Read on to learn more about the mortgage and housing trends for the year to come.
Mortgage rates are forecasted to rise modestly in 2021
In the midst of nationwide lockdowns, the Federal Reserve lowered the federal funds rate—the benchmark for most interest rates—to record-low levels in 2020. The Fed’s goal was to boost the economy, which was hammered by the COVID-19 pandemic. As a result of federal intervention, mortgage rates hit their lowest levels in 45 years, according to the Federal Home Loan Mortgage Corporation, or Freddie Mac. As of mid-February, the average rate for a 30-year fixed-rate mortgage was 2.81%, according to Freddie Mac. While temporary factors are beginning to push mortgage rates higher, such as increases in consumer confidence and spending, rates are predicted to remain in the low 3 percent range for the year. Therefore, buying a home in 2021 could enable you to capitalize on record-low mortgage rates.
Home prices are expected to migrate upward in 2021 and beyond
After stalling out at the beginning of the COVID-19 pandemic, home sales began to soar over the summer of 2020. Record-low mortgage interest rates were a primary factor driving the rebound in the housing market, which continued to perform well in the second half of the year. According to Freddie Mac, the high volume of home sales drove up house prices by 4% quarter-over-quarter in the last quarter of 2020. For 2021, many experts predict that demand for housing will increase from buyers who delayed purchasing homes because of the pandemic to those who need more space to accommodate working from home. Additionally, more millennials are entering the market. Strong housing demand and short supply could continue to drive home prices upward, setting the stage for more competition. Therefore, now is the time for homebuyers to take action.
As rental prices rise, homeownership could offer a degree of stability
Pandemic-related fear about living in large, multi-unit properties, especially in dense, urban areas, led to a softening of the rental market in 2020. Rental prices for many renters were effectively unchanged or actually dropped in large metropolitan areas such as Chicago, New York, and San Francisco. Additionally, with numerous companies shifting to remote work during the height of the pandemic, many renters relocated to less expensive and less dense areas. The rollout of the COVID-19 vaccine is expected to reverse this trend, fueling demand for rental units. As many renters return to urban areas, landlords could attempt to make up for lost revenue by aggressively increasing rental prices in 2021 and beyond. Because homeowners don’t have to worry about annual rent increases, homeownership could offer a degree of stability that renting does not.
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