Executive Mortgage Banker, Raveis Mortgage.
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You might say that 2020 was the year of the paradox. As the pandemic raged on and the economy shut down, the stock market reached new highs. Amid high unemployment and calls to cancel rent, many buyers took advantage of falling prices and interest rates to purchase homes. In fact, according to mortgage data firm Black Knight Inc., lenders issued $1.1 trillion in home loans between April and June of last year. That is a huge number, especially considering lenders extended roughly $2.5 trillion in home loans in all of 2019. If you are wondering whether now is the time to buy, here are some things to consider:
The 10-year bond yield has been on a steady climb, rising from 0.92% in the middle of December to 1.10% in mid-January. As bond yields rise, so do mortgage rates. The good news is that mortgage rates have only gone up by 0.125%. The average 30-year fixed rate for a purchase mortgage is still at or around 2.75%, depending on borrowers’ loan-to-value ratios and credit scores. Refinancing rates are slightly higher as banks favor new loans over churning their existing portfolios.
As we move into 2021, there are two forces at play in the direction of interest rates. First, the pandemic continues to rage around the world. Record numbers of new cases and deaths due to Covid-19 continue to hamper the economy. Some experts say that we have not seen the worst of the virus crisis yet, and that is bad news for the economy and will theoretically bring rates down. Second, on the other side of the coin is the vaccine and promised economic stimulus package to revive the U.S. economy and bring inflation with it. However, inflation could cause rates to go up.
As for how much higher rates will go this year, expectations are mixed. Some are expecting the 10-year bond yield to climb 2% by year end, while others expect it to max out around 1.5%. In any event, we can predict that mortgage rates will rise above the 3% mark at some point in spring 2021. For perspective, in January 2021, mortgage rates averaged 3.625%. Back then, we all thought that was a great deal.
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If we look even further back in history, as a report from HousingWire does, we learn that “in the 1980s … 30-year mortgage rates averaged 12%; in the 1990s, they averaged 8%; in the 2000s, they averaged 6%; and in the 2010s, rates averaged around 4%.” Compared with those numbers, today’s rates are extremely compelling.
As we usher in a new political era in the United States, 2021 should continue to be a good year for homebuyers and owners looking to purchase or refinance. There are many competitive lending products on the market right now, so if you are considering taking out a home loan of any kind, I say carpe diem. Now is the time to ensure you are in good financial standing. Check your credit score, pay down any outstanding debt and speak to your mortgage broker or lender about the best lending options for your specific financial situation.
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