The COVID-19 pandemic will continue to hit every corner of the housing market in 2021 and will affect whether you can buy a home. If mortgage lenders and the federal government don’t coordinate to prevent this wave of foreclosures, it will spell disaster.
Mortgage Rates Might Go Lower
Housing inequality will almost certainly worsen, according to a new report by the National Association of Realtors (NAR). That’s what we should be looking at in 2021, starting with the outlook for mortgage rates and home sales. Mortgage rates will fall and remain roughly the same until 2022. With 30-year mortgage rates expected to average 3.075% in the first half of the year, down from a record low of 2.8% last year.
The Mortgage Bankers Association (MBA) predicts mortgage rates will rise in the first half of the year, with a 30-year mortgage rate of 3.3%. Comparing the MBA’s forecast with NAR’s, the average forecast is that interest rates will fall. The MBA bases its forecast on a recovering economy and a large budget deficit that depresses interest rates, as well as a strong US economy in 2018.
Home Sales Will Rise
Existing house prices are expected to rise by 2.7% in 2021, compared with a 5.8% rise in 2020. Even if home prices slow, the MBA forecasts that they will pick up in the second half of the year. House prices are forecast to rise more slowly than they will in 2020 by 2021, but not as fast as in previous years. This is because young people starting a family are having a strong year for home sales, with 6.323 million existing homes expected to be sold by 2021.
Despite COVID restrictions, there is no reason why we shouldn’t have a massive real estate year. People are still getting married, still having children, so they are looking for opportunities to own a home.
Evictions Are Coming
The Center for Disease Control and Prevention (CDC) ordered temporarily to halt evictions for unpaid rents and to prevent people from being thrown from their rented homes. The risk is an overflow into overcrowded shelters or increased risk to vulnerable family members.
But the CDC’s order expired at the end of 2020 and the eviction moratorium does not wash the money from the bank accounts of financially stricken landlords. Currently, US tenants owe their landlords $34 billion in overdue rents. Not to mention 8 million households are three months behind schedule and facing eviction.
A Flood of Houses Coming Onto the Market
People who keep their jobs and income during the pandemic will be better off buying a home by 2021, according to a new report from the US Department of Housing and Urban Development. Most tenants need financial support, whether through unemployment insurance or rent assistance. The lack of financial support will hit tenants and their landlords hard. This could force many landlords to sell their properties and leave renters with even less affordable housing.
Workers in lower-paid jobs are also more likely to lose their income, putting them at an even greater disadvantage when buying a home. Those who have to work face-to-face are experiencing the worst times in decades.
City Prices, Suburb locations
According to the National Association of Realtors, more buyers have moved to the suburbs in recent years. Contrary to popular belief it is not the exodus from cities that some have speculated about. Sales in small towns and rural areas have declined slightly, but not as sharply as in large cities, according to the NAR. According to a recent study, 57% of buyers chose suburban locations, compared to 50% before the pandemic, and the number of homes for sale has increased in cities such as New York, Los Angeles, and San Francisco.
Repayment Rules May Be Revised
The 2007-2008 housing crisis showed that mortgage lenders were recklessly lending to people who could not pay their mortgages. So Congress requires a lender to review borrowers’ financing to ensure they could afford their loans. Regulators concluded that this requires a DTI ratio of 50% or more, which is considered “affordable” if payments are 43% below the borrower’s income. They added an exception that allows for leverage ratios of 40% or more in limited cases, but no more than 60%.
The Consumer Financial Protection Bureau has proposed eliminating the debt-to-income ratio (DTI) for loans with a leverage ratio of 50% or more and eliminating it altogether. The theory behind the proposal is that lenders charge higher rates to riskier borrowers, but assume that lenders are able to accurately assess risk. A loan is considered “affordable” if the loan’s APR is no more than 2.5% above or below the borrower’s income.
Experts advocate scrapping the 43% rule on debt to income because it would make more borrowers eligible for mortgages. Homebuyers have a higher debt-to-income ratio, which could also lead to the abolition of the DTI rule. The housing crash and the Great Recession were seen as a result of a lender’s “disregard for risk. Some believe the self-employed would benefit as lenders could look at them more holistically.