Will Mortgage Rates Remain Low in 2021, or Start to Rise?

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Will mortgage rates remain low in 2021? Or will they start to rise as we move further into the year?

That’s the big question right now, on the minds of home buyers and mortgage shoppers. And rightfully so. Interest rates hit a 50-year record low a couple of weeks ago, and they’ve been hovering near that historical low point for quite some time. It’s only natural to wonder how long the good times will last.

So, will mortgage rates remain low throughout 2021? Or will they start to creep upward over the coming weeks and months?

To answer this question (or to at least make an educated guess), we gathered input from a variety of housing analysts and industry forecasters.

The short answer: A number of industry experts expect mortgage rates to remain “low” in 2021 — but probably not as low as they are right now. So if you’re in the market for a home loan, a sense of urgency is probably warranted. Get ’em while you can.

Record-Low Rates at the End of 2020

During the week of January 7, 2021, the average rate for a 30-year fixed mortgage loan in the U.S. sank to an all-time low of 2.65%. That’s based on the nationwide weekly survey conducted by Freddie Mac, a survey that has been running continuously since the 1970s.

It’s worth repeating: At the start of January, 30-year mortgage rates hit their lowest point in 50 years. That’s a noteworthy event, especially for those who are in the market for a home loan. It’s not hyperbole to call it a once-in-a-lifetime opportunity.

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

The dramatic chart above comes from Freddie Mac. It shows the average rate for a 30-year fixed home loan (the most popular mortgage product in the U.S.), going back three years.

As you can see, 2020 brought a steady decline in borrowing costs (despite a slight uptick in March / April). That trend led to a surge in mortgage activity, including a sharp uptick in home refinancing.

Related: It’s a great time for a 30-year fixed

But getting back to the question at hand: Will mortgage rates stay low in 2021? Or inch upward?

Will Mortgage Rates Stay Low in 2021?

The general consensus among industry analysts and researchers is that home loan rates will remain low throughout 2021, partly due to stimulus measures taken by the Federal Reserve.

When they published the results of their latest survey, Freddie Mac’s research team made the following statement:

“Mortgage rates have hovered near historic lows for almost a year, fueling purchase and refinance activity amid a global health crisis. We’re now seeing rates fluctuate a bit as political and economic factors drive Treasury yields higher. However, we forecast rates to remain relatively low this year as the Federal Reserve keeps interest rates anchored near zero for a longer period of time, if needed until the economy rebounds.”

There’s a lot of important information in this paragraph. So let’s unpack it one piece at a time:

  • They said mortgage rates have been “near historic lows” for almost a year, a statement that looks back to early 2020. That’s true, but also a bit misleading. It makes it sound like rates plateaued or flatlined last year. But, as you can see from the chart above, they actually declined steadily throughout 2020.
  • They also said low rates have fueled purchase and refinance activity. That’s also true. In many ways, 2020 was a banner year for the real estate and mortgage industry. According to an end-of-year report from the National Association of Realtors, existing-home sales rose 5.6% in 2020 compared to 2019 — despite a global pandemic.
  • They also mentioned Federal Reserve policy. As a stimulus measure, Fed officials have stated they plan to keep the federal funds rate near zero for the foreseeable future. That has an indirect effect on consumer loans.
  • Lastly (and more to the point), Freddie Mac’s researchers said they expect “mortgage rates to remain relatively” low in 2021. That’s a bit vague, because there’s no way to predict such things with complete accuracy. But the general outlook is that mortgage rates will stay “low” over the coming months, which probably means somewhere within the upper-2% and lower-3% range.

Forecast: A Slight Increase Over the Coming Months

Freddie Mac isn’t the only group predicting that mortgage rates will rise slightly as we move into the second, third and fourth quarters of 2021. Analysts from the Mortgage Bankers Association (MBA) and Realtor.com feel the same way, to varying degrees.

Last month, a pair of economists from the MBA said they expect mortgage rates to remain low overall during 2021, but with a slight uptick in the months ahead. They also pointed to the Fed’s actions in all of this.

According to Mike Fratantoni and Joel Kan of the MBA:

“The Federal Reserve this month reaffirmed their commitment to keep short‐term rates at zero for the foreseeable future, noting the slowing pace of economic growth due to the intensification of the pandemic. We fully expect that they will maintain rates at this level for years.”

MBA’s analysts said that 30-year fixed mortgage rates averaged 2.8% during 2020. Looking ahead, they expect the annual average to increase to 3.2% by the end of 2021.

That might not seem like a huge increase — and it’s not, in the grand scheme of things. But when you add on the very real possibility of higher home prices, it adds up. Home buyers who postpone their purchases until later this year could pay a price for their hesitancy.

Similarly, the research team from Realtor.com® said they expect mortgage rates to remain in their current low range for most of this year, with a gradual increase between now and the end of 2021.

In their December 2020 housing market forecast and outlook, Realtor.com’s team predicted that “mortgage rates will continue to hover near 3% then slowly rise to 3.4% by the end of the year.”

The bottom line is this: While borrowing costs are expected to stay low for the foreseeable future, most forecasters also anticipate a slight uptick over the coming months. So borrowers who want to lock in the best deals should probably expedite the process, if at all possible.