One of the most consistent things in housing last year was just how low mortgage rates were.
Back in March, the prevailing market interest rate for a 30-year, fixed-rate mortgage fell below 3.3% for the first time ever – and stayed that way for the rest of the year, setting new record lows 15 more times over the course of the year.
And it looks like interest rates at or below 3% could be here to stay for all of 2021, at least according to one prominent housing observer.
According to a new forecast from Freddie Mac’s Economic and Housing Research Group, the prevailing market interest rate for a 30-year mortgage is expected to average around 2.9% over the first six months of 2021, before climbing ever so slightly to 3% in the last six months of 2021.
“One of the biggest reasons the housing market performed strongly during the pandemic is the record low mortgage interest rates,” Freddie Mac’s economists said in their latest forecast.
“As of the first week of January 2021, the U.S. weekly average 30-year fixed mortgage rate reached another historical low of 2.65%,” they continued.
“This low mortgage interest rate environment is projected to continue through 2021 and 2022 as the Federal Reserve has voted to keep the interest rates anchored near zero for a longer period of time, if needed until the economy rebounds,” the economists added. “With mortgage interest rates averaging around 2.8% in the fourth quarter of 2020, it is forecasted to average around 2.9% through the end of 2021.”
According to Freddie Mac’s economists, low interest rates aren’t the only thing they expect to stick around in 2021. They also expect home prices to continue rising, home sales to continue at a strong pace, and mortgage originations to continue at an elevated pace, albeit one that’s not quite as record-breaking as it was in 2020.
“The low mortgage rates, increasing home sales, and increasing house prices (of 2020) have also given a boost to mortgage originations,” Freddie Mac’s economists wrote. “Total mortgage originations are forecast to hit a historical high of $4 trillion in 2020, with refinance originations projected to hit nearly $2.6 trillion and purchase originations to hit $1.4 trillion.”
Freddie Mac expects originations to fall from 2020’s projected total of $4 trillion (a total that is previously unheard-of) to $3.3 trillion in 2021, still well above where the mortgage market has been the past few years.
According to Freddie Mac’s forecast, refinance originations are expected to fall from this year’s sizable total, but still exceed most years in the last decade. Add in purchase originations that are expected to rise as home sales continue at their current pace and that leads to another strong housing economy in 2021.