Mortgage Industry Outlook for 2021: Rates, Volume, Trends & More

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Mortgage industry outlooks for 2021 suggest that rates could remain low for the foreseeable future. Though they could creep upward as we move further into 2021.

Industry forecasters also predict that home loan origination volume will decline this year, compared to 2020. That’s mainly due to an expected slowdown on the refinancing side.

Overall, however, the housing industry remains one of the few bright spots in the broader economy. Real estate markets across the U.S. have shown surprising strength throughout the coronavirus pandemic. And that’s expected to continue throughout 2021 as well.

Mortgage Industry Outlook for 2021: Mostly Sunny

Mortgage rates could hover below 3% (on average) over the coming months. Loan originations could drop this year, compared to last. Digital workflows and remote work will continue to dominate the industry in 2021. And the housing market will chug along as if the pandemic never even happened.

Those are some of the leading mortgage industry outlooks and predictions for 2021. Let’s explore them one at a time.

1. Mortgage rates will remain low in 2021.

Federal Reserve officials announced they would keep the short-term federal funds rate near zero for the foreseeable future. That’s all part of a broader stimulus policy launched during the coronavirus pandemic.

It’s also part of the reason why mortgage rates in the U.S. are so incredibly low right now. Granted, the Fed doesn’t control consumer interest rates directly. But their policies do have an indirect influence on borrowing costs.

In a mortgage industry forecast published in December 2020, the Mortgage Bankers Association (MBA) predicted that home loan interest rates would average 3% or below for the coming months.

At the start of 2021, the average rate for a 30-year fixed mortgage was 2.67%, just one basis point above an all-time record low set the week before. That’s based on the weekly survey conducted by Freddie Mac:

Chart: Average 30-year mortgage rate. | Source: Freddie Mac PMMS

According to the research team at Freddie Mac:

“All eyes have been on mortgage rates this year, especially the 30-year fixed-rate, which has dropped more than one percentage point over the last twelve months, driving housing market activity in 2020.”

But rates could rise a bit, as we move further into 2021. That’s a shared mortgage industry prediction offered by both Freddie Mac and the MBA. Both organizations believe that home loan rates could creep upward over the coming months.

On December 31, the team at Freddie Mac stated: “Heading into 2021 we expect rates to remain flat, potentially rising modestly off their record low…”

As for the MBA, the industry group believes 30-year mortgage rates will end up averaging 3.2% during 2021, following an average of 2.8% in 2020.

Bottom line: The general consensus among mortgage industry outlooks and forecasts is that interest rates will remain low for some time, but could inch upward later in 2021. If they do rise, it probably won’t be by a substantial amount. So there doesn’t seem to be much urgency on this front, from a borrower’s perspective.

2. Overall mortgage origination volume will decline.

It’s expected that 2021 will be another good year for the mortgage industry, due to steady home-buying activity within the housing market. But we probably won’t see the loan origination volume of last year.

Recent mortgage industry predictions suggest that loan origination volume will decline slightly in 2021, following the record-breaking numbers recorded during 2020.

In its most recent industry forecast, MBA’s economic research team wrote:

“Overall mortgage originations in 2021 are expected to fall to around $2.75T from 2020’s banner $3.57T total, but this would still be the second-highest total in the past 15 years.”

But there’s a distinction to be made here, between purchase and refinance loans. The MBA mortgage industry outlook mentioned above predicts that purchase loan volume will increase to a record high in 2021, while refinancing activity will drop off significantly.

MBA’s analysts said that “purchase originations are expected to rise to a record $1.56T … We anticipate refinance originations will slow [in 2021] as mortgage rates rise above 3 percent.”

Bottom line: With home buyers snatching up properties at a near-record pace, there’s plenty of business for mortgage industry professionals. That trend is expected to continue well into 2021, though we could see a bit of a slowdown over the coming months as refinancing activity wanes.

3. Digital workflows and ‘e-closings’ are here to stay.

The mortgage industry has been working toward a more digital, less paper-driven workflow for years. And then the coronavirus came along, ushering in the age of social distancing.

In response to the pandemic, the real estate and mortgage industries adopted digital, paperless procedures that allowed them to conduct business safely.

Some of the mortgage industry professionals we know had a banner year in 2020, despite the COVID-19 situation. That’s largely due to digital procedures that eliminated the need for face-to-face contact. And it’s something that will continue well into 2021.

In fact, digital documents and so-called “e-closings” are likely here to stay. Consumers have gotten used to this model, to the point that they now expect it. This is the way of the future, for both the mortgage and real estate industries.

4. The housing market will continue to thrive, as it did in 2020.

If you looked at home-buying activity during the summer, fall and winter of 2020 — and nothing else — you wouldn’t have known there was a global pandemic and economic downturn happening. The real estate market continued firing on all cylinders, even as other areas of the U.S. economy slowed to a crawl.

Real estate and mortgage industry outlooks predict that this level of activity will continue in 2021, as well.

As Freddie Mac’s economists recently wrote:

“Heading into 2021 we expect rates to remain flat, potentially rising modestly off their record low, but solid purchase demand and tight inventory will continue to put pressure on housing markets as well as house price growth.”

In a previous blog post, we explained the stark imbalance between supply and demand that’s plaguing many housing markets across the U.S. In many cities, there aren’t nearly enough homes for sale to satisfy the demand from buyers. And that’s putting upward pressure on home prices.

Strong housing market activity and rising prices will be a common feature of 2021, just as they were throughout 2020.

Disclaimer: This report includes mortgage industry predictions, forecasts and outlooks issued by third parties not associated with the Home Buying Institute. Such forecasts are based on ever-changing conditions and often miss the mark, in terms of accuracy. They are the equivalent of an educated guess and should be treated as such.