2020 was a big year for mortgages. While the residential real estate market tanked along with everything else back in March and April, it experienced rapid recovery and growth, driving recovery in other sectors of the economy as well. The rapidly rebounding housing market meant that a huge number of people took out or refinanced their mortgages. Now experts are saying that 2021 is going to continue this trend, and if anything be an even bigger year in terms of mortgages.
Home inventory has been historically low the last half of 2020. As this trend continues into the new year, home prices are continuing to rise to meet the low supply of single-family homes on the market. However, due to action by the Federal Reserve, interest rates are at equally historic lows. According to the latest figures from Freddie Mac, the average interest on a 30 year fixed mortgage, currently stands at 2.67%.
These low interest rates have encouraged people to buy, despite the fact that the median price of homes, especially ones priced in the starter home range, has risen significantly. According to data from Zillow, the median home price was up 12.1% year-over-year at $337,475. But people are still buying, in part due to the cultural shifts brought on by COVID, but largely due to the low interest rates. The same Zillow report shows that in October of this year, the seasonally adjusted rate of home-sales was up 26.6% from the previous year. This was one of the strongest recorded months for home sales since 2005.
Taken together, all signs point to 2021 continuing to be a very strong year for home sales and mortgages. 2020 and 2003 are currently the only years on record where the total volume of mortgages in the US exceeded $3 trillion. Now mortgage executives and analysts are predicting that 2021 will be the third such year.
According to a report from the Financial Times, many of the nation’s top mortgage experts are predicting these trends to continue. While the Mortgage Bankers Association has forecast a mortgage volume of $2.75 trillion, this is starting to look like a conservative figure. Chris Whalen of Whalen Global Advisors is predicting volume between $3 and $4 trillion. The CEO of United Wholesale Mortgage, Mat Ishbia, believes that 2021 will exceed 2020 and also break the $3 trillion threshold.
In addition to the low rates, other contributing factors to these bullish predictions include millennials moving out of cities and buying homes in the suburbs as well as technological developments that make the mortgage business more efficient.
Rates may fall even further as the “primary-secondary spread”—the difference between mortgage rates from lenders and the return on federally insured mortgage back securities—is currently very high. The historic standard was a spread of just over 0.5%. Currently it is at 1.5% having peaked at around 2% in the spring.