Economists expect 2021 to be another record breaking year for the housing market — albeit a more ‘normal’ one that 2020. Buyers should benefit from more inventory, but are likely to face higher mortgage rates.
Meanwhile, mortgage interest rates increased slightly from yesterday.
Today’s Mortgage Rates
The average rate for a 30-year fixed-rate purchase mortgage was 3.337% on Tuesday. On Monday, the average rate was 3.305%.
Money’s mortgage rates include data from over 8,000 lenders across the United States and are updated daily. These rates include discount points and represent what a borrower with a 20% down payment and 700 credit scores — roughly the national average FICO score — would have been quoted.
|Mortgage Rates for December 2, 2020|
|Loan type||Average Rate|
|30-Year Fixed Loan||3.337%|
|15-Year Fixed Loan||2.403%|
|30-Year FHA Loan||3.182%|
|30-Year VA Loan||3.257%|
|30-Year Jumbo Loan||3.609%|
Source: Money | Date: Dec. 1, 2020 | Rates assume a credit score of 700
How do I get the best mortgage rates?
Mortgage rates vary from state to state. On Tuesday, borrowers in Hawaii were quoted the lowest mortgage rates — at 3.123%. People looking for mortgages in Nevada saw the highest average rate at 3.619%.
Nationwide, borrowers with the highest credit scores, 740 and above, were quoted rates averaging 2.869%, while those with credit of 620 or below were shown rates of 4.708%.
You may be able to negotiate a lower rate if you shop around or if you have other accounts with the lender. (Money’s picks for the best mortgage lenders are here.) Currently, some lenders are hiking up advertised rates to keep demand in check, so you may be offered a lower rate if you reach out directly.
Freddie Mac’s widely quoted Primary Mortgage Market Survey put rates at 2.72% with 0.7 points paid for the week ending November 25. That’s steady with a week earlier when rates hit the 13th record low of the year. The mortgage purchaser’s weekly survey reflects borrowers who put 20% down on conforming loans and have excellent credit.
Today’s Mortgage Refinance Rates
Money’s survey also shows that the offered rate for a 30-year refinance for someone with a 740 credit score was 3.596% on Tuesday. Last December, the average mortgage rate (including fees) was 3.88%.
|Refinance Rates for December 2, 2020|
|Loan type||Average Rate|
|30-Year Fixed Loan||3.596%|
|15-Year Fixed Loan||2.792%|
|30-Year FHA Loan||3.564%|
|30-Year VA Loan||3.646%|
|30-Year Jumbo Loan||3.562%|
Source: Money | Date: Dec. 1, 2020 | Rates assume a credit score of 740
A homeowner with a $200,000 mortgage balance currently paying 3.88% on a 30-year could potentially cut their monthly payment from about $940 to about $909 by financing at the current lower rates. To determine if it’s worth it to refinance your mortgage, also consider the closing fees you paid on your current mortgage, how much your new lender is charging and how long you have left on your loan term. (Our picks for the best lenders for refinancing are here).
What else is happening in the housing market today?
Realtor.com expects home prices to reach new highs next year. In its 2021 Housing Forecast, the home listing site projects prices will increase by 5.7%. Buyer demand is forecast to remain strong as well, with existing home sales increasing by 7%. Interest rates, which have set 13 new record lows so far this year, are forecast to slowly increase throughout the year, ending 2021 near the 3.4% mark.
Next year should also see the return of more “traditional” seasonal sales patterns as the market starts to return to normal. The big question heading into next year is whether supply will be able to catch up with demand fast enough.
“The 2021 housing market will be much more ‘normal’ than the wild swings we saw in 2020. Buyers may finally have a better selection of homes to choose from later in the year, but will face a renewed challenge of affordability as prices stay high and mortgage rates rise,” said Danielle Hale, Realtor.com’s chief economist. “While waiting until the fall or winter months of 2021 may mean more home options to choose from, buyers who can find a home to buy earlier in the year will likely see lower prices and mortgage rates.”
The year started with a 4 million supply deficit and home inventory levels have at times run as high as 40% below 2019’s already depleted level. Next year, Realtor.com anticipates new housing starts will increase by 9%, which should help ease the housing shortage.
According to George Ratiu, senior economist for Realtor.com, recent news about the effectiveness of a couple of the COVID-19 vaccines’ effectiveness in treating the virus is also luring more homeowners into the market.
“We see that some of the limitations we’ve had with social distancing and a lot of sellers’ concerns about putting their house on the market in an uncertain environment diminish,” said Ratiu. “So we’re actually seeing a number of sellers willing to put their existing homes on the market pick up.”
While it seems that 2021 is going to be another banner year for the housing market, there are a couple of wildcards that could cause the forecast to change. One is the recent surge in COVID infections. If more lockdowns and/or quarantines are implemented in order to control the rate of infection, the housing market could see a further decrease in inventory, putting even more pressure on buyers. However, if a vaccine becomes available early on, the housing market could perform better than expected.
The second wildcard is the risk of a double-dip recession. While some businesses and industries have recovered fairly quickly from the initial impact of the pandemic, there are others that are still struggling. The same goes for unemployment, as some sectors have recovered jobs more quickly than others. Any setback in the overall economic recovery could lead to long-term impacts on the housing market as there would be fewer potential buyers in the market, resulting in lower demand for housing and lower home prices.
Quote of the Week
Mike Vietti, on how low interest rates pushed him and his wife into purchasing a home now:
For more on how the pandemic has made homeownership possible for millions of Americans read: Lockdown Converted Many Americans Into Serious Savers. Now they Have Houses to Show for It.