Now that we’re more than three months into 2021, we’re starting to get a relatively clear picture of what’s going on in the housing market. The overarching themes so far: low inventory, slowing home sales, and rising prices. But what about what’s going to happen for the rest of the year?
According to a new forecast from Freddie Mac’s Economic and Housing Research Group, low inventory and rising prices may persist but that won’t stop people from buying more homes than they did last year.
Freddie Mac’s latest forecast projects there will be 7.1 million home sales in 2021, an increase over last year’s total of 6.5 million.
“As the economy continues to improve, we expect conditions to remain generally favorable for the housing and mortgage market,” said Sam Khater, Freddie Mac’s Chief Economist.
According to Freddie Mac’s forecast, the average interest rate for a 30-year, fixed-rate mortgage is projected to rise to 3.4% by the end of this year, before climbing to 3.7% in 2022.
“Higher mortgage rates have the potential, however, to dampen the robust demand we’ve been experiencing, and we therefore forecast total originations to decline to $3.5 trillion in 2021,” Khater said.
For reference, in 2020, there were just over $4 trillion in mortgage originations, the highest on record by a sizable margin. So even if originations do fall to $3.5 trillion, there will still be substantially more mortgages originated than in many other years in recent memory.
According to Freddie Mac’s forecast, those increasing mortgage rates will lead to a decline in refinance originations from 2020’s total of $2.65 trillion to $1.83 trillion this year.
But that decline won’t be seen in the purchase market. According to Freddie Mac’s forecast, “increased home sales and rising house prices” will push purchase originations from $1.39 trillion in 2020 to $1.66 trillion in 2021.
As for those home prices, Freddie Mac expects that the rate at which home prices are rising to slow down, meaning that while home prices will keep rising, they won’t be rising quite as fast as they have been.
But Khater cautioned market conditions could prevent some prospective home buyers from becoming actual home buyers.
“Other important obstacles to consider include high home prices and low housing supply that will certainly influence the trajectory of purchase activity specifically,” Khater said.
Nevertheless, Freddie Mac expects both home sales and purchase originations to be higher this year than they were last year.