The Mortgage industry has faced a lot of unpredictable changes due to the pandemic in the past year. As the new year begins, so also the hopes and expectations for 2021. There are many questions that the Mortgage lenders are thinking of, such as, What lending trends can we expect in the mortgage industry? Will the interest rates go up or down in 2021? What will be the refinance rates for 2021? Here, we will discuss the mortgage rate predictions for 2021.
Forecasts by Mortgage Lenders for 2021
Currently, the mortgage rates are low, which some experts predict will continue even in early 2021. Freddie Mac’s prediction for 2021 is that the interest rates will remain low, but the housing markets and the house prices will see some growth.
Figure 1- Mortgage rate reached a record low in Dec 2020 Image source: http://www.freddiemac.com/pmms/#
Lower mortgage rates have resulted in an increase in homebuyers in the market. That, in turn, has resulted in a rise in house prices. According to Fannie Mae’s forecast for 2021, the total home sales are expecting to increase by 0.8% and new-home sales by 6.2%.
According to the Mortgage Bankers Association (MBA) financial forecast for 2021, the average 30-yr fixed-rate mortgage percentage will start at 2.9% in the first quarter of 2021 and end at 3.2% in the last quarter.
Figure 2- MBA Finance Forecast as of Dec 21, 2020 Image source: https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary
Although these Mortgage lenders have predicted a marginal rise in mortgage rates. These low rate percentages mean homeowners can be saving hundreds of dollars from their monthly mortgage payments.
Experts’ prediction on mortgage rates in 2021
Kiefer of Freddie Mac predicts that the current low mortgage rate will continue into 2021 and may moderately be higher at the end of the year. He believes that the state of the economy affects mortgage rates. If the economy opens up and inflation increases, there will be an increase in the mortgage rates. Yun, a chief economist of the National Association of Realtors, predicts mortgage rates will be stable for 2021, with a slight potential increase from 2.71% seen in 2020. Yun thinks that the Federal Reserve's actions will impact mortgage rates indirectly. Some economists predict that the rates will be as high as 3% but may not rise higher than 3.1% to 3.3%. This increase in the mortgage rate will slow down the demand for housing in the year.
Factors affecting mortgage rates
The mortgage rates will rise or fall depending on factors such as:
Treasury yields- 10-yr treasury rates are indicators of the movement of the mortgage rates. Treasury yields are slowly increasing since December 2020and their rise signifies the rise in mortgage rates for 2021. Investors in mortgage-backed securities will demand high mortgage rates as the treasury yields rise.
- Federal Reserve- Its monetary policy and federal funds rates will have an indirect impact on mortgage rates. Many financial experts believe that Federal Reserve won’t raise baseline mortgage rates in 2021. There is a prediction that the Federal funds rate will be near zero till employment and inflation return to normal.
- COVID-19 Vaccine- Experts believe that wide distribution of the vaccines will give a boost to the economy. The economic recovery will increase mortgage rates. Some financial analysts' opinions are that the mortgage rates will be volatile depending on the acceptance of vaccines and the economy bouncing back to normalcy.
Figure 3- Federal Reserve Data for mortgage rates Image source: https://themortgagereports.com/32667/mortgage-rates-forecast-fha-va-usda-conventional
Mortgage Originations and technology trends predictions in 2021
Fannie Mae's November 2020 forecast had called for a rise in mortgage originations by $4.12 trillion. The refinance share of all mortgage originations is predicted to drop to 41% in 2021. This prediction is based on the MBA forecast. The rise in end-to-end Digitization and the use of microservices in loan originations are forecast for 2021. Mortgage CRM having cloud-based microservices will help in disbursing loans faster. Digital lending processes will involve minimal manual intervention. Mortgage automation encourages homeowners to close their mortgage loans quickly. Inflooens has the best Mortgage CRM that closes loans lightning-fast through its intuitive customer portal.
Mortgage Loan Origination systems fulfill the growing demand for real-time loan approvals. With the mortgage rates remaining at a low level, homeowners are opting for quicker loan closure. Having a robust Mortgage LOS that automates the entire loan process is the need of the hour. Prospective homebuyers and homeowners will look into refinancing as the mortgage rates movement is forecast to be on the lower side under the Biden administration. There is a need to have the right Mortgage CRM that will monitor the mortgage rates. Inflooens has the best Mortgage LOS with embedded Mortgage CRM tools and Plug-ins that provides super-fast outcomes.
Mortgage rates are continuously changing every day. Predictions for 2021 in terms of mortgage rates are vital for both mortgage lenders and borrowers to decide the next course of action. With the vaccine rollout and hopes of the economy reviving in 2021, the mortgage industry expects a bright year ahead.
Inflooens has the best Mortgage LOS that will continue to provide seamless operations to its clients in the new year.