As we move into the latter half of the year, questions about
what’s to come are top of mind for buyers and sellers. Near record-low mortgage
rates coupled with rising home price appreciation kicked off a robust housing
market in the first half of 2021, but what does the forecast tell us about
what’s on the horizon?
Mortgage Rates Will Likely Increase, but Remain Low
Many experts are projecting a rise in interest rates. The latest
Quarterly Forecast from Freddie Mac states:
“We forecast that mortgage rates will continue to rise
through the end of next year. We estimate the 30-year fixed mortgage rate will
average 3.4% in the fourth quarter of 2021, rising to 3.8% in the fourth
quarter of 2022.”
However, even as mortgage rates rise, the anticipated
increase is expected to be modest at most, and still well below historical
averages. Rates remaining low is good news for homebuyers who are looking to
maximize their purchasing power. The same report from Freddie Mac goes on to
say:
“While higher mortgage rates will help slow the pace of
home sales and moderate house price growth, we expect overall housing market
activity will remain robust. Our forecast has total home sales, the sum of new
and existing home sales, at 7.1 million in 2021….”
Home Price Appreciation Will Continue, but Price Growth
Will Likely Slow
Joe Seydl, Senior Markets Economist at J.P. Morgan, projects
home prices to continue rising as well, indicating buyers interested in
purchasing a home should do so sooner rather than later. Waiting for rates or
home prices to fall may not be wise:
“Homebuyers—interest rates are still historically low,
though they are inching up. Housing prices have spiked during the last six-to-nine
months, but we don’t expect them to fall soon, and we believe they are more
likely to keep rising. If you are looking to purchase a new home, conditions
now may be better than 12 months hence.”
Other experts remain optimistic about home prices, too. The
graph below highlights 2021 home price forecasts from multiple industry
leaders:
Inventory Remains a Challenge, but There’s Reason To Be
Optimistic
Home prices are rising, but they should moderate as more
housing inventory comes to market. George Ratiu, Senior Economist at
realtor.com, notes there are signs that we may see the current inventory
challenges lessen, slowing the fast-paced home price appreciation and creating
more choices for buyers:
“We have seen more new listings this year compared with
2020 in 11 of the last 13 weeks. The influx of new sellers over the last couple
of months has been especially helpful in slowing price gains.”
New home starts are also showing signs of improvement, which
further bolsters hopes of more options coming to market. Robert Dietz, Chief
Economist at the National Association of Home Builders (NAHB), writes:
“As an indicator of the economic impact of housing, there
are now 652,000 single-family homes under construction. This is 28% higher than
a year ago.”
Finally, while it may not fundamentally change the market
conditions we’re currently experiencing, another reason to be optimistic more
homes might come to market: our improving economy. Mark Fleming, Chief
Economist at First American, notes:
“A growing economy in the summer months has multiple
implications for the housing market. Growing consumer confidence, a stronger
labor market, and higher wages bode well for housing demand. While a growing
economy and improving public health conditions may also spur hesitant existing
owners to list their homes for sale, it’s unlikely to significantly ease the
super sellers’ market conditions.”
Bottom Line
As we look at the forecast for prices, interest rates,
inventory, and home sales, experts remain optimistic about what’s on the
horizon for the second half of 2021. Let’s connect today to discuss how we can
navigate the market together in the coming months.
Source: Real Estate with Keeping Current Matters
