Top 5 Trends to Watch in the Mortgage Industry in 2021

April 14, 2021
Connor Cassidy

The mortgage industry broke records last year as the actions by Central Banks around the globe, who were gripped by the coronavirus pandemic, brought interest rates to record low levels. The reaction to these rates saw a massive increase in loan originations not only for new home purchases but for home refinances too. Other factors played into this as well, as life moved from in person to virtual when governments moved to shut down entire countries. In turn, many people who were now at home most of the time deeply reconsidered their living situation. For those in the city, the bigger homes and quitter neighborhoods of the suburbs became a very attractive option. This unprecedented shift in consumer behavior has lots wondering what 2021 will have in store for the industry, here are five trends to be on the lookout for this year.

  1. Mortgage Rates Will Rise in 2021

It should come as no surprise that a year following record low interest rates around the globe would see a rise in those same rates. Many Central Banks like the Federal Reserve in the United States dropped their benchmark rates to record lows. As a result, mortgage rates hit their lowest levels in almost 50 years! The resulting economic recovery will come with a rise in those benchmarks and in turn a rise in those mortgage rates, this will cause a slowdown in loan originations.

2. A Steady Movement to the Suburbs

As more and more major metropolitan areas were hit by the coronavirus, many became wary of large gatherings and wanted more space between themselves and others. Add the fact that many white-collar professionals were working from home, many decided that the city wasn’t for them and opted for a home outside of it. This trend will most likely stay as vaccine rollout takes its time and many businesses are not rushing to bring back workers into the office. In the US, the government sees single-family housing builds increasing 12.5% compared to last year.

3. Home sales and home prices expected to move higher — but not nearly the same rate as 2020

According to the Economic & Strategic Research Group at Fannie Mae, home sales are projected to come in 3.8% higher this year than in 2020. These researchers see home buying activity to remain relevant in the coming year, but nowhere near the pace we saw last year. As sales continue to stay strong prices will rise with them but also not in tune with what they were last year. Zillow, the online home estimator, expects home prices to increase 10.3% through November. To add to this, Danielle Hale, chef economist at Realtor.com, said,  “Our 2021 outlook expects an eventual moderation to price gains as home construction ramps up and the widespread availability of COVID vaccines bring more flexible sellers back to the housing market, but it will be some time before these changes bring relief.”

4. Originations will be down compared with 2020

Even though home sales are expected to increase this year, total originations of loans are expected to decline. Sam Khater, chief economist at Freddie Mac, explains, with purchase mortgage originations in the US projected to be $1.6 trillion and refinance originations of $1.8 trillion. Its estimate of $3.3 trillion in total originations would be a 25% decline in total originations in the market.

5. A drop in commissions revenue for those in the industry

With loan originations down, it should be expected that revenue through commissions would also decline as well. This seems reasonable, given the decline in origination activity projected to be within 10% and 25% between the two major US government-sponsored entities. These entities also said that some of the biggest mortgage finance lenders could expect a slowdown in revenue compared with 2020.

Reference:

Carlsen, Courtney. “5 Trends to Watch in the Mortgage Industry in 2021.” The Motley Fool, 2 Feb. 2021, www.fool.com/investing/2021/02/02/5-trends-to-watch-in-the-mortgage-industry-in-2021.

Leave a comment