2021 Forecast: More Home Sales, Lower Rates, and Confident Workers

Keys in a home's front door

Low mortgage interest rates and pent-up demand from a desire for homeownership will bolster California home sales in 2021. However, economic uncertainty caused by the COVID-19 pandemic and continued supply shortage will limit sales growth according to a housing and economic forecast released this week by the California Association of Realtors.

Single-family existing home sales in the state will experience a noticeable downturn in 2020 (reaching only 380,000) until popping back up to nearly 393,000 in 2021. This is still down from 398,000 in 2019 and a range of 403,000 – 425,000 from 2015 to 2018, depending on the year.

The state’s median home price will continue rising, averaging $640,000 in 2020 (up 8 percent from $592,000 in 2019), but its pace will noticeably slow down and only rise about 1.4 percent in 2021 (hitting $649,000). The median value has only risen for several years on end, coming up from $476,000 in 2015 and bolstered by a historically low mortgage interest rate environment.

The average rate on a 30-year mortgage across the state will drop from 3.2 percent in 2020 to 3.1 percent in 2021 (with the lowest rates possibly falling to new lows for some mortgages and others remaining at a historically-low level they experienced for most of 2020). Mortgage rates hit 4.5 in 2018 before starting to drop again.

To read more, including the state’s housing affordability index and CAR’s economic forecast for 2021, click here.

Fannie Mae’s U.S. Housing Market Update
Fannie Mae’s Home Purchase Sentiment Index (HPSI) increased 3.5 points in September to a reading of “81,” rising for the second consecutive month (September).

Notably, the percentage of respondents who say they are not concerned about losing their job in the next 12 months increased from 78 percent to 83 percent, while the percentage who say they are concerned decreased from 22 percent to 16 percent. As a result, the net share of Americans who say they are not concerned about losing their job increased 11 percentage points.

Three of the six HPSI components increased month over month, with consumers reporting a substantially more optimistic view of home-selling conditions, expected home price growth, and a better labor market, but a more pessimistic view of homebuying conditions and mortgage rate expectations.

Year over year, the HPSI is down 10.5 points — recovering more than half of the early COVID-19 pandemic period decline. Going forward, the wild card will be whether enough sellers enter the market to continue to meet strong homebuying demand. The home purchase market requires the proper mix of home price growth and continued economic recovery to achieve sustainable levels of housing activity.

To view all numbers/survey categories in the index, click here.

Freddie Mac's Latest U.S. Forecast
According to Freddie Mac’s latest Quarterly Forecast, the average 30-year, fixed-rate mortgage is expected to be 3.2 percent in 2020 and 3 percent in 2021. Other national forecast numbers for 2021 include:

  • House price growth is expected to increase to an annual rate of 5.5 percent in 2020. In 2021, that rate is expected to be 2.6 percent.
  • Home sales are expected to increase in 2020 to 6.2 million homes and decrease in 2021 to 6.1 million homes.
  • Purchase originations are expected to increase to $1.41 trillion in 2020 and $1.45 trillion in 2021.
  • Refinance originations are expected to be $2.17 trillion in 2020 before falling to $1.24 trillion in 2021.
  • Overall, the forecast expects annual mortgage origination levels to be $3.58 trillion in 2020 and $2.69 trillion 2021.

Total U.S. Forbearance Falls 18 Consecutive Weeks
The Mortgage Bankers Association's (MBA) latest Forbearance and Call Volume Survey released this week revealed that the total number of loans now in forbearance decreased by 49 basis points from 6.81 percent of mortgage servicers' portfolio volume in the prior week to 6.32 percent as of Oct. 4. According to MBA's estimate, 3.2 million homeowners are now in forbearance plans.

The share of Fannie Mae and Freddie Mac loans in forbearance dropped for the 18th week in a row to 4.03 percent, a 36-basis-point improvement. Ginnie Mae loans in forbearance decreased 89 basis points to 8.27 percent, while the forbearance share for portfolio loans and private-label securities (PLS) decreased by 33 basis points to 10.06 percent. The percentage of loans in forbearance for depository servicers decreased 50 basis points to 6.53 percent, and the percentage of loans in forbearance for independent mortgage bank (IMB) servicers decreased 54 basis points to 6.65 percent.

To view the announcement and more numbers, click here.

Latest Delinquencies from a National Perspective
Mortgage delinquencies continued to rise in July according to CoreLogic's Loan Performance Insights report. The company found that 6.6 percent of all mortgages were at least 30 days past due (including those in foreclosure.) This represents a 2.8-percentage point increase in the overall delinquency rate compared to July 2019, when it was 3.8 percent. It was, however, a lower rate than the 7.1 percent reported for June.

The improvement was in early-stage delinquencies (loans 30 to 59 days past due). They declined from 1.8 percent in July of last year after spiking in April of this year to 4.2 percent.

The rate of adverse delinquencies (loans 60 to 89 days past due) rose to 1 percent (from 0.6 percent a year earlier), but were down from 2.8 percent in May. These improvements were offset by serious delinquencies (loans at least 90 days past due), including loans in foreclosure. That category surged from 1.3 percent in July 2019 to 4.1 percent. It is the highest serious delinquency rate since April 2014.

U.S. Foreclosures Reach Historical Lows as Filings Stall
Attom Data Solutions released its third-quarter 2020 U.S. Foreclosure Market Report, which shows a total of 27,016 U.S. properties with forclosure filings — default notices, scheduled auctions or bank repossessions — in the third quarter, down 12 percent from the previous quarter and down 81 percent from a year ago to the lowest level since tracking began in early 2008.

The firm's accouncement said foreclosure activity has "ground to a halt" due to moratoriums put in place by federal, state, and local governments in conjunction with the the congressional/regulatory mortgage forbearance program initiated by the CARES Act due to the COVID-19 pandemic and economic slowdown. However, it's important to remember that the numbers today are artificially low, even as the number of seriously delinquent loans continues to increase. A burst of foreclosure activity will most likely make its way into the quarterly numbers once various government programs expire.

'REconomy' Podcast: First American Update
In the inaugural episode of the “REconomy” podcast from First American, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi discuss the economic forces influencing real estate, affordability, housing supply, the impact of historically low interest rates, and how the COVID-19 pandemic is shaping demand for housing.

They remain cautiously optimistic, with positive tailwinds from demographic-fueled household formation and mortgage rates. However, headwinds remain — namely the lack of available inventory of homes for sale, but also for the slow labor market recovery to possibly stretch out even longer.

They are all issues the experts are keeping an eye on, but it's worth mentioning that the current dynamics will probably result in continued house price appreciation.

To listen to the interview, click here.

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