The COVID-19 pandemic will continue to touch every corner of the housing market in 2021. It will keep mortgage rates low and affect who will be able to buy homes.
That's not all. A wave of foreclosures will begin in 2021 unless lenders, nonprofits and the federal government coordinate effectively to prevent it. And housing inequality almost surely will get worse.
Here are the housing and mortgage trends to watch for in 2021, starting with an outlook for mortgage rates and home sales.
1. Mortgage rates may slide even more
After hitting record lows in 2020, 30-year fixed mortgage rates are forecast to fall even further in 2021.
The 30-year mortgage rate is expected to average 3.075% in 2021, down from 3.125% in 2020, according to an average of forecasts from Fannie Mae, Freddie Mac, the National Association of Realtors and the Mortgage Bankers Association.
Three of those organizations — all but the Mortgage Bankers Association — predict that mortgage rates will fall or stay flat in 2021. The MBA predicts that mortgage rates will go up in 2021, with the 30-year averaging 3.3%. When averaging the MBA's forecast with the forecasts of the other three, the average prediction is for rates to fall.
The MBA bases its prediction on a recovering economy, plus high federal budget deficits, pushing interest rates higher.
» MORE: Compare current mortgage rates
2. Home prices and sales will rise
Home prices are forecast to go up in 2021, but at a slower pace than in 2020. Prices of existing homes are expected to rise 2.7% in 2021, compared with a 5.8% increase in 2020, according to an average of forecasts from Freddie Mac, NAR and MBA.Even as home prices decelerate, home sales are expected to pick up. Some 6.323 million existing homes are expected to be sold in 2021, a 4.7% increase over 2020, according to an average of forecasts from Fannie, Freddie, NAR and MBA.
Nicole Rueth, producing branch manager for Fairway Independent Mortgage in Englewood, Colorado, is confident that young people starting families will power a strong year of home sales. "We have this massive wave of 27-, 28- and 29-year-olds right now," she said. "Before COVID happened, they were the reason we were going to have massive years in real estate over the next three years. They're still here. They're still having kids and getting married, so they're looking at every opportunity."
3. Housing counselors will be in demand
The COVID-19 pandemic led to layoffs, furloughs and reduced work hours. Many homeowners couldn't afford their mortgage payments. To prevent foreclosures, policymakers required many lenders to offer mortgage forbearances. A forbearance allows the homeowner to temporarily make partial payments or skip payments altogether.
COVID-related mortgage forbearances provide relief for up to 12 months. Unless an extension is granted, the oldest forbearances will expire in March and April of 2021. Mortgage companies will try to get borrowers to pay as much as they can without pushing them into foreclosure.
Many borrowers will catch up on their past-due amounts by paying extra each month for an agreed-upon period. Alternatively, some borrowers may be allowed to add the past-due amount to the end of the mortgage, lengthening its term. Most borrowers won’t be required to repay their past-due amounts in a lump sum. But the message about payment flexibility hasn't gotten through to everyone.
According to some housing counselors, the No. 1 fear among homeowners is that they'll be required to make a lump sum payment after a forbearance expires, Ellie Pepper, relationships and innovations director for the National Housing Resource Center, said during an October panel discussion organized by the Urban Institute.
Some of these homeowners dodge mortgage companies' attempts to contact them, but they're willing to talk with housing counselors. Consequently, there's likely to be a need for more housing counselors in 2021 and beyond. That will require funding similar to the National Foreclosure Mitigation Counseling Program, which was established in December 2007 and eventually served more than 1.9 million homeowners.
It also may be necessary to create a new version of the Hope Now Alliance, a coalition of housing counselors and mortgage companies that was formed in 2007 to find ways to reach and counsel at-risk homeowners, but has since ceased operations.
4. Millions of renters may be evicted
An unlikely federal agency — the Centers for Disease Control and Prevention — temporarily halted evictions for nonpayment of rent. The order prevented people from being tossed out of their rented dwellings and into crowded shelters and family members' homes, where they would risk infection. The CDC’s order expires at the end of 2020, however.
The eviction moratorium didn’t put money into the bank accounts of landlords, who are suffering financially. By January, tenants will owe landlords up to $34 billion in past-due rent, according to the National Council of State Housing Agencies. Up to 8 million households could be behind on rent payments by three or more months, putting them at risk of eviction.
An Urban Institute study on the plight of mom-and-pop landlords concluded that renters need financial support, whether through unemployment insurance or rental assistance. "A lack of financial support would affect both renters and their landlords, potentially forcing many individual landlords to sell their properties and leaving renters with even fewer affordable housing options," the report said.
5. Homes will go to well-off buyers
People who kept their jobs and their incomes in the pandemic are in a better position to buy a house in 2021. They also are more likely to be higher-paid. Workers with lower-paying jobs were more likely to suffer interruptions in income, putting them at even more of a disadvantage when buying homes.
Tian Liu, chief economist for Genworth Mortgage Insurance, calls it "a tale of two economies." If you have a face-to-face service job, "you're seeing the worst time in decades." But the impact isn't as severe if you have a job that lets you work from home.
6. Black households will fall further behind
Homeownership rates never fully recovered from the 2007-2008 housing crisis, but Black homeowners continue to fare worse than white homeowners. In the first quarter of 2007, the white homeownership rate was 75.3%, while the Black rate was 48%. At the end of 2019, the white homeownership rate was 73.7% (1.6 percentage points lower), while the Black homeownership rate was 44% (4 percentage points lower).
Black households are likely to be disproportionately harmed by the COVID-19 pandemic, too. For one thing, they’ve suffered worse health outcomes. For another, Congress provided stronger protections to homeowners than to renters. Because whites are more likely to be homeowners, while Blacks are more likely to be renters, the protections provided more relief to white people.
"If we are not proactive, communities of color will have an even slower recovery coming out of this crisis than they did with the Great Recession," Lisa Rice, president and CEO of the National Fair Housing Alliance, said during the Urban Institute panel discussion.