January Market Reports Point to High Demand in 2021
Written By: Joel Palmer, Op-Ed Writer
As the month of January wraps up, housing and mortgage market data released in the first month of the year point to continued optimism.
The National Association of Realtors reported that while pending home sales fell slightly between November and December, they were still more than 21 percent above last year’s level.
"Pending home sales contracts have dipped during recent months, but I would attribute that to having too few homes for sale," said Lawrence Yun, NAR's chief economist. "There is a high demand for housing and a great number of would-be buyers, and therefore sales should rise with more new listings.”
According to the National Association of Home Builder’s latest Housing Trends Report, 15 percent of adults were considering a home purchase in the fourth quarter of 2020, up from 11 percent a year earlier.
Fannie Mae said in its Economic & Housing Outlook that it upgraded its forecast for 2021 mortgage originations over previous estimates.
Fannie is now forecasting purchase volume to reach $1.8 trillion in 2021, a slight increase over 2020 and representing an $88 billion increase over its previous forecast.
Just as important for mortgage processors and underwriters, Fannie increased its refinance forecast by 20 percent over its previous estimates. The company now expects refinance volume to total $2.2 trillion in 2021, which is less than $2.8 trillion in 2020.
“We believe there remains further capacity for strong refinance volume in 2021, especially in the first quarter of the year, supported by a continued low-rate environment, strong incoming application data, and an upgraded outlook for home price growth,” read the report.
“At current interest rates, we estimate 67 percent of outstanding mortgage balances still have at least a half-percentage point incentive to refinance.”
Black Knight, a software, data and analytics company that works with the mortgage and real estate industries, recently reported that 16.7 million homeowners are still considered “high-quality” refinance candidates. That’s nearly double the 9 million who refinanced in 2020.
Black Knight Knight defines refinance candidates as those who are current on their mortgage payments, have at least 20 percent equity in their homes and credit scores of 720 or higher, and who can cut their mortgage rate by at least 0.75 percent via a refinance.
Fannie cautions in its report that the surge in housing activity over the second half of 2020 “has likely passed.”
“While we forecast that housing demand will continue to be strong, based on an improving labor market and favorable demographic factors, we believe the pace of activity will likely slow over time toward its underlying trend. We do not expect mortgage rates to decline further, and inventories of homes for sale remain extremely tight.”
Freddie Mac is also forecasting a more moderate market in 2021. In its most recent quarterly forecast, Freddie predicts total mortgage originations to fall from $4 trillion in 2020 to $3.3 trillion in 2021, and home sales to remain flat at 6.5 million.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
