2020 was whirlwind year for the real estate markets. Low interest rates, competitive buying, election panic selling, and all time highs in the purchase of luxury real estate, all during a pandemic! 2020 was a good year to be a seller.
2020 saw record shattering low interest rates for 30 year fixed mortgages creating a very attractive market for buyers. Buyers came out in droves making competition as fierce in some markets as ever. Refinancing has also been off the charts with mortgage applications up 25% this year.
Lower rates have given more purchasing power to buyers but prices are also rising. In Seattle home values are up 7.4% over 2019. Low inventory (due to both COVID and those refinancing instead of selling) are threatening the affordability gains promised by lower rates. The solution is to build more homes, but new construction supply is not keeping up with demand. Starts for new construction were up 8% in 2020 with forecasts to build even more new homes in 2021 with new start numbers predicted to rise another 16%. Builders are feeling confident.
While it is a seller’s market there are a few bright spots for buyers. In some cases buyers are getting price breaks on over valued properties and in other cases sellers are choosing real people over investor/house flippers in competitive bidding processes. Urban condos are softening on prices due to COVID work at home practices changing the lifestyles of workers.
Are Lower Mortgage Rates on The Horizon in 2021?
Local Economist Matthew Gardner, Chief Economist at Windermere believes that rates will bottom out this year in the 4th quarter below 3% He believes we will see a modest rise in 2021 to 3.06% Wells Fargo predicts rates to stay under 3% in 2021, and Fannie and Freddie are predicting just under 3%. The Mortgage Bankers Associations predicts a rate rise to 3.3%. In all forecasts rates will rise only modestly in the next year.
Will Foreclosures Impact the 2021 Housing Market?
Changing economic conditions due to the pandemic have caused many homeowners to slip into forbearance. While the numbers are down from a peak in May 2020, approximately 2.6 million homeowners could be foreclosed upon next spring. Signs of distressed properties can already be seen this fall, especially in the multi-family market.
Some worry foreclosures will flood the market, while others say that yes, some foreclosures will take place, but they will be more of a trickle rather than a flood. This is due to buyers being in a better position with lenders than during the Great Recession housing bubble. Lenders now offer more cooperative approaches to help homeowners avoid foreclosure that are less punitive such as lengthening loan terms. More than anything the market is expected to normalize in 2021 which means more balance between buyers and sellers.