In the same way that the COVID-19 crisis has touched every corner of the business world and the global economy, it will continue to affect every area of the housing industry in 2021. One thing remains certain in an increasingly volatile real estate industry: The public health crisis will continue to affect in that it will affect buyers and will continue contributing significantly to the ongoing housing inequality.
But all hope is not lost as some good will always come with the bad. We can anticipate some mortgage and housing trends this 2021, starting with a deep dive into home sales and mortgage rates.
Residential property sales and prices will rise.
According to forecasts from the National Association of Realtors (NAR), Mortgage Bankers Association (MBA), and Freddie Mac, home prices will continue to rise this year, but at a slower pace than 2020. As residential property prices decrease, home sales will rise. There is an expected 6 million home sales to be completed in 2021, which is a 4.7% increase from last year. Experts are also confident that young adults looking to start families will lead the charge towards a year filled with residential property sales. Young adults are still getting married and having kids, and many of them are looking to invest in a forever home where they can raise a family.
There will be a demand for housing counselors.
The COVID-19 pandemic caused employment crises worldwide, with many employees experiencing layoffs or reduced hours. To prevent foreclosures, U.S. policymakers required lending companies and institutions to provide home mortgage forbearance or reliefs. Since the forbearances entail that payments can be delayed to a later date, the number one concern among homeowners is that they might end up having to make a lump sum payment when the forbearance period ends or expires. Enter housing counselors, who are specifically trained and certified by the Department of Housing and Urban Development to assist individuals in their financial situation, help inform them of their options if they find difficulty in paying their mortgages, and help them create a financial plan that will help them pay their mortgage loans.
The suburbs will grow at the expense of cities.
When it was clear that COVID-19 would spread to the entire world, home buyers found themselves gravitating towards the suburbs, based on the NAR’s profile of residential property buyers and sellers. But as the year went on, it was clear that this so-called exodus to the suburbs wasn’t all it was cracked up to be: There was still a small increase in home purchases in urban areas—it was 12% before the pandemic, and increased up to 14% during. At the same time, home sales in rural areas and small towns fell a little.
However, moving to the suburbs might still be an enticing prospect for buyers, especially since living in smaller and more rural towns usually cost much less, and many people might find the space for physical distancing as an advantage.
There will be a revision of the ability-to-repay rule.
If there was one thing the recession of 2008 and 2009 taught us, it’s that mortgage loaners tend to provide loans to individuals who didn’t necessarily have the capacity to repay their mortgages. Since then, the U.S. Congress has required lenders to thoroughly assess borrowers’ financial situations and if they could pay back their loans. Since then, regulators came up with a new rule which decreed that a mortgage would only be considered affordable if the monthly payments were 43% or lower than the borrower’s income. The regulators also added exceptions that allow ratios of 50% or higher in limited cases.
However, the Consumer Financial Protection Bureau has proposed doing away with the limits in debt to income. Instead, it creates a maximum limit on the annual percentage rate, also known as APR. In this proposal, a loan would only be considered affordable if its APR is lower than two percentage points higher than the average APR for a primary mortgage. If this proposal pushes through, it may mean more homeownership opportunities for first-time and minority residential property buyers who tend to have higher debt-to-income ratios.
If you’re looking to buy a home in 2021, now may be a better time than any. Mortgage rates are currently sitting at record lows in history, and mortgage activities may continue to grow this year. Find a lender that offers a variety of home refinance and purchase solutions, can get you any number of adjustable or fixed-rate products, and even provide a zero-down home loan through various programs. Partnering with a good lending company is key, so make sure to choose a reputable lender who has your interests at heart too.