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How the Post-Pandemic Economic Rebound Will Impact the Housing & Mortgage Industries in 2021

Projections of a continued housing market rebound were the consensus among economic and housing experts during NAR's Real Estate Forecast Summit held earlier this month. They predict a post-pandemic economic rebound, improving job conditions and stable interest rates to continue in 2021.

Industry insiders in attendance agreed that mortgage rates will hover around 3% in the coming year, as they expect an annual median home price increase of 8.0%. Housing affordability is now being challenged due to record-high home prices, but sales for all of 2020 are already on pace to surpass last year's levels. Even with all the uncertainty for the future, the housing market continues to outperform expectations.

The group of experts also predicted:

  • Gross Domestic Product growth of 3.5% in 2021 and 3.0% in 2022

  • An annual unemployment rate of 6.2% next year with a decline to 5.0% in 2022

  • Average annual 30-year fixed mortgage rates of 3.0% and 3.25% for 2021 and 2022

  • Annual median home prices to increase by 8.0% in 2021 and by 5.5% in 2022

  • Housing starts of 1.50 million next year and 1.59 million in 2022

  • The share of the U.S. workforce working from home to be 18% in 2021 – down from 21% in 2020 – and 12% in 2022

We’ve collected some more informative data below to reflect the start of the new year:

Mortgage Rates

A new year, a new record low mortgage rate. Despite a full percentage point decline in rates over the past year, housing affordability has decreased because these low rates have been offset by rising home prices. However, the forces behind the drop in rates have been shifting over the last few months and rates are poised to rise modestly this year. The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential homebuyers during the spring home sales season.

“All eyes have been on mortgage rates this year, especially the 30-year fixed-rate, which has dropped more than one percentage point over the last twelve months, driving housing market activity in 2020,” said Sam Khater, Freddie Mac’s Chief Economist. “Heading into 2021 we expect rates to remain flat, potentially rising modestly off their record low, but solid purchase demand and tight inventory will continue to put pressure on housing markets as well as house price growth.”

Existing and Pending Home Sales

Existing-home sales fell in November, snapping a five-month streak of month-over-month gains. All major regions either took a step back or held steady in terms of their respective month-over-month status, but each of the four areas experienced significant year-over-year growth.

Total existing-home sales, includinf single-family homes, townhomes, condominiums and co-ops, decreased 2.5% from October to a seasonally-adjusted annual rate of 6.69 million in November. However, sales in total rose year-over-year, up 25.8% from a year ago.

The median existing-home price for all housing types in November was $310,800, up from $271,300 in November 2019. November's national price increase marks 105 straight months of year-over-year gains. Total housing inventory at the end of November totaled 1.28 million units, down 9.9% from October and down 22% from one year ago. Properties typically remained on the market for 21 days in November and 73% of homes sold in November 2020 were on the market for less than a month.

First-time buyers were responsible for 32% of sales in November. NAR's 2020 Profile of Home Buyers and Sellers revealed that:

  • The annual share of first, including single-family homes, townhomes, condominiums and co-ops, decreased 2.5% from October to a seasonally-adjusted annual rate of 6.69 million in November. However, sales in total rose year-over-year, up 25.8% from a year ago.

  • Individual investors or second-home buyers purchased 14% of homes in November, identical to the share recorded in October 2020 and a small decline from 16% in November 2019.

  • Foreclosures and short sales represented less than 1% of sales in November, equal to October's percentage but down from 2% in November 2019.

Existing-home sales are expected to increase roughly 10% and new home sales by 20% in 2021.

Pending home sales declined in November as month-over-month contract activity fell in each of the four major U.S. regions. However, compared to a year ago, all four areas achieved gains in pending home sales transactions.

The latest monthly decline is largely due to the shortage of inventory and fast-rising home prices. Listed homes going under contract on average at less than a month due to a backlog of buyers wanting to take advantage of record-low mortgage rates.

Mortgage Forbearance

The Mortgage Bankers Association's (MBA) latest Forbearance and Call Volume Survey revealed that the total number of loans now in forbearance remained unchanged relative to the prior week at 5.53% as of December 27, 2020. According to MBA's estimate, 2.7 million homeowners are in forbearance plans.

The share of loans in forbearance remained relatively unchanged in the final two weeks of 2020, maintaining the trend of hovering around 5.5 percent for the last two months. However, the share for Ginnie Mae loans continues to inch up and is now at its highest level since the week of November 1st. While the increasing number of COVID-19 cases continues to slow economic activity, the passed stimulus legislation should provide financial support for many households as the vaccine rollout commences

Buyer's or Seller's Market in 2021?

For the second consecutive month, Fannie Mae’s Home Purchase Sentiment Index, a composite index designed to track the housing market and consumer confidence to sell or buy a home, dropped six points in December to 74. Year-over-year, the HPSI is down 17.7 points. Both the “good time to sell” and “good time to buy” components fell significantly as respondents overwhelmingly noted unfavorable economic conditions. In turn, housing market confidence fell to its lowest level since May 2020.

The percentage of HPSI respondents who said it was a good time to buy a home fell again from 57% to 52% and those who said it was a good time to sell a home decreased from 59% to 50%. Those who expect home prices to increase remained the same at 41%, however the percentage of those who say home prices will go down increased from 13% to 16%. The percentage who responded they expect rates to go down remained the same at 8% - they weren't wrong.

"It is an understatement to say the year 2020 has been filled with challenges and full of surprises," said Lawrence Yun, NAR chief economist and senior vice president of research. "Yet, one astonishing development has been the hot housing market as consumers eyed record-low mortgage rates and reconsidered what a home should be in a new economy with flexible work-from-home schedules."

In 2020, home sales will reach 5.52 million, the highest annual mark since 2006, with the median home price setting a record high of $293,000. 2021 looks to be heating up as well.

Connect with Princeton Mortgage today by calling 800.635.0977 or visiting to learn more.

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