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It's been an interesting year to get a mortgage. While rates for both new home purchases and refinances have been extremely competitive, a housing inventory crunch has made the process of finding an affordable home difficult. And with a new year right around the corner, here's what 2021 may have in store with regard to mortgages and home buying.
1. Low rates
Will mortgage rates drop in 2021? They just may. Recently, Fannie Mae projected that the average 30-year fixed mortgage rate will fall to 2.7% next year, compared to 3.1% this year. Of course, top rates will be reserved for borrowers with outstanding credit scores, but the continuation of low rates is good news for prospective buyers.
2. Increased housing inventory
The pandemic caused a lull in new home listings as many would-be sellers opted to hold off in the wake of economic uncertainty. But there's reason to believe housing inventory will pick up in 2021. First, we're post-election, so that level of uneasiness has been eliminated. Secondly, we can expect a full-fledged deployment of coronavirus vaccines at some point in the coming year, and once things settle down on the pandemic front, sellers should be more comfortable with the idea of welcoming buyers in to look at their homes. Increased inventory could help mortgage applicants avoid overspending in the course of purchasing homes.
3. Rising home prices
An uptick in housing inventory could lower buyer demand, thereby driving home prices downward. While that is a possibility, experts don't seem to buy it. Both Freddie Mac and the Mortgage Bankers Association predict that home prices will climb in 2021 -- specifically, in the 2% range.
4. A shift from larger cities
Many people are likely to continue working remotely well into 2021 -- and possibly beyond the pandemic. The result? Mortgage application rates could drop in larger cities as buyers seek out smaller, more affordable metro areas to settle down in. Without being tied to a specific location due to workplace proximity, we could also see suburban home purchases pick up in 2021 as buyers aim to snag more space.
5. A wave of foreclosures
Foreclosures declined significantly in 2020, and much of that had to do with the fact that there's been relief available to borrowers during the pandemic. But once that relief runs dry, we could see an uptick in foreclosure activity. In fact, this ties into increased housing inventory. While foreclosure properties may not sit at the top of prospective buyers' lists, they do make for more selection, and often, these homes can be purchased at a substantial discount.
In the absence of a crystal ball, it's impossible to predict what the mortgage and housing market will look like in the coming year. But based on what we know today, these are some of the trends that could lie ahead. It's a good idea to keep reading up on the real estate market and tracking mortgage rates to put yourself in the best position to reap savings on the road to buying a place of your own.