The economic crisis that has been affecting the US since 2020 due to the ongoing COVID-19 pandemic brought some relief to homeowners and homebuyers as it led to low mortgage rates. Early 2021 will remain an opportune time to buy/sell a home. However, the rates in the future are likely to be different.
The average rate for a 30-year fixed-rate mortgage started dipping in mid-March 2020 and hasn’t stopped ever since. The average rates have remained below 3% since July 30, 2020. However, experts believe that these rates below 3% are unlikely to continue.
Economists predict that rates will go above 3%, but not over 3.1%-3.3%. As per Lawrence Yun, chief economist, National Association of Realtors, “Rates are more likely to rise than fall, but it will be an inconsequential move.” Even a few percentage points can add hundreds of dollars to monthly mortgage payments and tens of thousands of dollars to the overall loan amount.
The Mortgage Bankers Association (MBA) believes that the average rate for a 30-year mortgage will start at 2.9% in the first quarter of 2021 and gradually rise to 3.2% by the end of the year. The MBA expects rates to peak at 3.6% in 2022.
Higher rates mean lowered buying power, more so because home price appreciation will increase in 2021. The MBA forecasts home price appreciation to touch 5.1% in 2021.
If mortgage rates rise, fewer homeowners will refinance their mortgages. As per predictions by the MBA, refinancing volume will decline from $2.149 trillion in 2020 to $1.191 trillion in 2021 due to increasing rates. Refinancing volume is likely to plummet further in 2022 to $573 billion. According to First American Financial Corporation deputy chief economist Odeta Kushi, “Refinance activity will depend on rates. Even if rates rise a few basis points above where we’re at now, we can expect a pretty robust refi demand market in 2021.”
If you plan to refinance, do so at the earliest possible because higher rates can eat away at your savings. To get the lowest mortgage rate, maintain your credit score in good shape and look around for offers.