2020 was a truly unprecedented year. With it behind us, let’s look ahead at several housing market trends that are likely in 2021 and beyond.
First, exceptionally low mortgage rates are likely to be around for an extended period. The Federal Reserve is expected to continue an accommodative monetary policy and keep the federal funds target below 0.25% through 2022.
This should ensure that initial rates on ARMs will remain low, and we also expect 30-year fixed-rate loans to remain below 3% during early 2021 and average about 3.1% during the next two years.
This would be a percentage point lower than the 4.1% average during the 2010 to 2019 time period. These low rates will provide an excellent opportunity for families with good credit to buy or refinance homes. Using CoreLogic TrueStandings data, we estimate that there will be about 20 million home mortgages outstanding at the start of 2021, with a contract interest rate of 4% or higher.
While some of these are less likely to refinance because they have a low balance, a recent delinquency or have been in forbearance, there are still plenty of borrowers who will refinance in 2021. Expect refinance volume to remain brisk, albeit less than in 2020.
Second, Millennials will add substantial demand to the housing market over the next few years. Looking at America’s population by single year of age, the largest numbers of Millennials in 2021 are those aged 29 to 31. With the median age of recent first-time homebuyers at 33 years, demographic forces will add an important tailwind to home-buying demand.