Despite the uncertainty of 2020, the housing market remains stable and strong as we enter 2021.
According to our latest Forecast, one of the biggest drivers of continued strong housing market performance is record low mortgage rates. Over the last twelve months the 30-year fixed-rate mortgage dropped more than one percentage point, reaching an all-time low of 2.65% the first week of the new year.
While overall economic growth will be impacted by the pandemic and subsequent vaccine, we expect the housing market to stay the course in 2021.
Here’s what you need to know:
- Interest rates to remain low. The average 30-year fixed-rate mortgage hit a record low over a dozen times in 2020 and the low interest rate environment is projected to continue through this year. We expect interest rates to average below 3% through the end of 2021. While this is a modest rise from 2020 averages, the recent vote by the Federal Reserve to keep interest rates anchored near zero should keep rates low.
- Home sales to remain high. The demand for housing is expected to remain strong in the new year, fueled by both low mortgage rates and the ability to work remotely. Last year, home sales reached highs not seen since 2006 and we expect sales to ride that wave into 2021, averaging 6.5 million for the year.
- House prices to grow moderately. The high volume of home sales and low supply of housing edged up house prices in the second half of 2020. We expect house price growth to moderate to 5.4% for full year 2021.
- Refinances to start declining. Low mortgage rates drove a surge in refinance activity in 2020 which boosted total mortgage originations to historic highs. As mortgage rates rise modestly in 2021, we predict that refinance activity will start to slow.
Many of the trends that shaped the market last year, especially historically low mortgage rates, will continue to drive housing activity in 2021. For more insights on the latest housing trends, see our housing and economic research.