Housing Market Predictions

Mortgage Rate Forecast for the Rest of 2021

First-time buyers are now taking on more debt than at any other historically recorded time. With all these shocking figures, it’s no surprise that mortgage rates are on the rise again.

With many parts of the world now starting to recover from the pandemic, people are naturally returning to their plans of buying property, although the pandemic still brought opportunities for many first-time buyers and homeowners. Throughout the pandemic, interest rates dropped significantly, leading to record borrowing. The Freddie Mac 30-year fixed mortgage started 2020 with an interest rate of 3.72%, dropping substantially to 2.65% at the beginning of 2021. A Federal Reserve Bank of New York report revealed that 2020 had the largest number of mortgage originations in a quarterly period than at any other time in history. The property boom caused by the pandemic has also resulted in $182 billion in equity being withdrawn from homes in 2020 and a recent Redfin report stated that over 50% of homes are now selling within two weeks. 

First-time buyers are now right to feel concerned about rising mortgage rates as the market recovers from the pandemic boom. First-time buyers are now taking on more debt than at any other historically recorded time. With all these shocking figures, it’s no surprise that mortgage rates are on the rise again.

Expect Higher Interest Rates

Although mortgage rates dropped during April 2021, there was a steady six-week rise between February and March 2021. It is likely that rates will continue to rise throughout 2021. Since January, rates have increased by 0.44%, a jump that experts predicted would come later in the year. With this quick rise, the rate at which homes are now selling and the shortage of available property, it is reasonable to expect lenders to increase mortgage rates later this year.

For those looking to buy soon, taking our fixed-rate mortgages while rates are temporarily down will probably be the best solution. The number of homes for sale has fallen by 50% since 2019, meaning that new buyers are often borrowing more than ever before as over 35% of homes are now selling for more than the asking price. With rates lower than they are likely to be later in the year, finding a property, securing a fixed-rate mortgage and acting quickly is probably in the buyers’ best interest if they are looking to buy a home in the next two years. The economic recovery following the pandemic is uncertain, but as the housing market appears to be attracting substantial interest from first-time buyers and a considerable percentage of homeowners withdraw equity from their homes, it’s fair to assume that mortgage rates will rise again.

Although the economic boost from the housing market has been undeniable as homeowners benefitted from refinancing deals and first-time buyers secured bargain rates on their first homes, the economy and financial assets are unlikely to see this again. There is now a strong demand and a limited supply, which means lenders have regained the upper hand.

A Reasonable Mortgage Rate Forecast For The Rest Of 2021

Although we have seen significant drops in mortgage rates over 2020 and 2021, it is important to remember that the pandemic has had a substantial impact on this. As the outlook of the pandemic appears to be more positive, with vaccines becoming readily available, many people are now becoming optimistic for the future and the economy. This optimistic thinking is likely affecting mortgage rates, with the Mortgage Bankers Association expecting rates to reach 3.6% by the end of the year. Most experts are now expecting mortgage rates to climb steadily as the year progresses, not touching the lows of 2020.

Advice For Buyers

For those looking to buy soon, it’s important to remember that there are factors that can reduce what you pay for your mortgage. Improving your individual finances can land you a better rate, so here are some steps you can take to ensure you get the best possible rate.

  • Increase your down payment – although this can be difficult if you have limited funds, it may land you a better mortgage rate and mean you pay less in the long term.
  • Improve your credit score – a good credit score will mean you get the best rates from lenders, so ensure you pay your bills on time and settle any outstanding debts.
  • Decrease your DTI ratio – your debt-to-income ratio is how much you owe compared to what you earn, lowering this can make you more attractive to lenders and help you access better rates.

Summary

The discounted rates that the pandemic provided was short-lived. For those that are looking to buy in 2021, it’s important to be aware of the competition from other buyers and the lack of housing for sale compared to previous years. Finding a good mortgage rate can depend on many personal factors, so it’s paramount to take these into consideration before attempting to buy.

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