The 30-year mortgage rate hit a historic low this year, but could 2021 bring an even lower rate? Fannie Mae’s economic and strategic research group thinks the average rate for a 30-year, fixed-rate mortgage will hit 2.9 percent in 2021.
The government-sponsored mortgage loan entity is forecasting that COVID-19 will have a significant impact on housing sales this year — dropping 14.7 percent year-over-year in 2020 — but 2021 will see a sharp rebound, climbing 14.7 percent up from 2020, near 2019 levels.
Housing starts are also set to decline significantly in 2020, dropping 9.3 percent year-over-year, according to the forecast.
“Amid job losses and employment stability concerns, we expect the housing market to also experience a downside shock,” Doug Duncan, senior vice president and chief economist at Fannie Mae, said in a statement. “In our view, the negative shock will apply to both the home purchase and rental markets.”
“On the demand side, early indications are that the purchasing benefit of lower interest rates are being offset by the downturn in employment,” Duncan added. “On the supply side, the number of listings is falling, as those with homes to offer may either be hesitant to allow strangers to tour their home or worry that the lack of demand is placing downward pressure on the sales price they might otherwise receive.”
The forecasted low-interest rates for 2021 also predict a significant uptick in mortgage originations. The forecast is calling for purchase and refinance originations above 2019 levels in 2021.
The forecast anticipates, overall, a 3.1 percent contraction in real gross domestic product, followed by a rebound of 4.8 percent in 2021.
“The historically rapid decline in economic activity, the accompanying employment loss, and our limited, though improving, understanding of COVID-19 make this a particularly challenging forecast environment,” Duncan said.
“The variability around this forecast is wide, and is dependent on the incidence, severity, and duration of the virus, as well as the response of the public and policymakers to new information,” Duncan added. “In the background and contributing to the economic stress is the drop-off in demand and the negotiations over supply constraints in the oil industry.”