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Forecasting the 2021 Housing Market

Housing Market Forecast

It’s a New Year and that means bold new predictions for what 2021 may hold for the housing market. While there’s no way to absolutely know what’s ahead, there are some trends and signs that may offer a glimpse of what factors might impact the housing market this year, as well as few constants.

Existing Home Sales Numbers

With a historic surge in home refinances and purchases in 2020, data from the National Association of Realtors (NAR) still surprisingly revealed that existing-home sales data for November fell by 2.5%, ending a five-month streak of increases. But before anyone gets too alarmed, on Jan. 22 NAR reported that existing home sales for December went up 0.7%, which is a 5.6% increase from the previous December. With home sales in 2020 reaching their highest level since 2006, there is reason to be optimistic moving forward.

Historic Low Rates and Supply vs. Demand

We all saw the proliferation of record-low mortgage rates in 2020, which continue to provide greater purchasing power, including for first-time home buyers. Add this to the increase of remote work and relocations due to COVID-19, and the possibilities of an active housing market await. In addition, Millennials entering their prime home buying years and Gen-Z buyers offer the potential of even more participation of these key demographics in the housing market in 2021. With an imbalance between housing supply and buyer demand, there is a reason to believe that home prices may keep on growing.

How You Can Benefit

While many experts have predicted that interest rates will continue to be low in 2021, there are scenarios in which the borrower may benefit in scenarios below.

If Interest Rates Stay the Same…

In this scenario, interest rates will continue to remain historically low and home prices healthy. While this could be seen as the status quo, these are favorable signs for the homebuyer and the economy. Lower interest rates provide an incentive to purchase now.

If interest rates continue to remain historically low or fall even lower, it might be time to think about a bigger purchase such as a home. Plus, with low interest rates, you can pay off your home loan faster and pay less interest over the life of your loan—allowing you to own more of your home along the way and build equity faster. If you’re renting, it may be time to consider purchasing a home or condo to take advantage of historically low interest rates and competitive terms.

If Interest Rates Rise…

If the housing market experiences higher interest rates, it often means the economy is doing well and can benefit homeowners. In such an economy, homeowners may realize an accelerated appreciation of their properties. It stands to reason that people typically spend more when they are more secure about their economic future. Thus, they are more willing to invest as homeownership rates, in turn, go higher.

If you’re a homeowner who has built up enough equity in your home, a cash-out refinance is an option to consider should interest rates increase. While an existing fixed-rate, fixed-term loan will remain unaffected in this or any scenario, an Adjustable Rate Mortgage (ARM) provides a short-term benefit during a period of continued lower interest rates.

If Interest Rates Go Down…

While a home’s value can decrease during a downturn, it can potentially still be a good time to make a bigger purchase or even consider refinancing your existing mortgage to lock in a lower interest rate.

An added benefit of a housing market that is not as overcrowded may be more homes to choose from and a bidding process that may not be as competitive. This could lead to more favorable sales prices for homebuyers and a lower monthly mortgage payment.

Other Factors to Consider

There are many questions facing the housing market in 2021. The answers to the following questions will undoubtedly affect housing market’s performance over the next 12 months:

What will the impact of federal aid be to the economy?

Will buyers continue to be eager to migrate from cities to suburban and rural areas where land is more affordable?

How fast will jobs recover once vaccine distribution increases?

Will the new administration successfully push for legislation for down payment support and student loan forgiveness?

Will homes continue to appreciate and will inventory levels drive fierce competition between buyers?

Ready for a New Home Loan?

The New American Funding Loan team is happy to discuss your options with you and help you find a home loan to fit your unique needs. Let’s talk about it!

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