The year 2020 was marked by the economic turbulence caused due to the ongoing COVID-19 pandemic. The effect was seen on lending costs, as homebuyers and homeowners got a big break, thanks to the low mortgage rates. While 2020 was a good time to buy/sell a home or refinance a mortgage, expect the second half of 2021 to be different.
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While the Federal Reserve doesn’t directly set mortgage rates, it plays a role in determining the overall rate environment. The central bank slashed rates at the beginning of the coronavirus recession and hinted at keeping rates low for the next few years, which means a slightly upward push for mortgage rates.
Mortgage rates started plummeting in mid-March 2020 and haven’t stopped doing so ever since. The average rates for 30-year fixed-rate mortgages have remained below 3% since July 30, 2020. However, this trend is unlikely to continue in 2021 because of the availability of vaccines. The Mortgage Bankers Association (MBA) believes the average rate for a 30-year mortgage will begin at 2.9% in the first quarter of 2021 and gradually rise to 3.2% by year-end. The MBA predicts the rates to peak at 3.6% in 2022.
Although mortgage rates will rise, they’ll remain good enough to attract homebuying. The MBA forecasts home price appreciation to be 5.1% in 2021, a small fall from 5.3% in 2020. Higher mortgage rates will discourage refinancing. The MBA predicts that refinancing volume will plummet from $2.149 trillion in 2020 to $1.191 trillion in 2021. In 2022, the refinancing volume will reduce even more drastically to $573 billion.
Investors and economists believe the US economy will bounce back in 2021 as vaccination drives become more widespread, but mortgage rates are unlikely to soar. Homeowners who plan to refinance should consider doing it sooner because rising rates could impact your savings. The best way to get the lowest mortgage rate is to have a good credit score and shop around for offers—don’t take the first offer you get.