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Look Out for These Lending Trends in 2021

by on Jan 29, 2021, 12:07 AM

Look Out for These Lending Trends in 2021

If 2020 taught us anything, it was to avoid making predictions. At the same time, riding out the pandemic is no reason to stick our heads in the sand. In every crisis, there is an opportunity, and for those with an astute understanding of housing market trends, 2021 could yet be favorable. Given that buying a home is a long-term financial commitment, the mortgage industry is equipped to absorb short-term uncertainty. Here’s what to expect in 2021 and how to set up for your next move. 

First, What Happened to Housing in 2020?

In every sense, 2020 broke the record books. We saw record highs in housing prices and record lows in mortgage rates. But the biggest shock, perhaps, was that the housing market didn’t nosedive. Given that the market is valued at a staggering $35 trillion, we can count our blessings that 2020 didn’t emulate 2008. A combination of stimulus packages and mortgage payment holidays was enough to prevent a meltdown, and as we emerge from the worst, the mortgage industry is even able to talk about ‘pent up demand’ for new housing. 

Optimism should come with a caveat, however. As mortgage deferrals come to an end and unemployment rises the longer the pandemic continues, there’s no housing boom on the horizon. Rather, experts generally agree that house prices will simply stagnate in 2021. 

What’s the Worst That Could Happen?

Worst-case predictions for 2021 would accommodate rising unemployment and a subsequent surge in foreclosures. That in turn can lead to a drop in average house prices, leading to a loss of home equity for existing owners. And we still haven’t gotten to the bad news yet. The biggest elephant in the room is lack of housing inventory. 

Without new stock available, it will be as tough as ever for new buyers to enter the housing market. Low availability of properties drives up house prices. In fact, average house prices rose by 7% to 9% year on year towards the end of 2020. For first-time buyers, that reduces the prospects of achieving a loan without a high credit score. 

Could 2021 Be a Vintage Year for Lending?

Existing homeowners could have every reason to rub their hands at the onset of the New Year. House prices, after all, are rising, while the interest rate on 30-year mortgages has fallen to an all-time low of 3%. That would make 2021 ripe for locking in a low interest rate or refinancing a mortgage. Given that two-thirds of home buyers already own a home, this year offers the chance to reap the rewards of price appreciation and historically low borrowing. And if prices were to ease off or flatten, borrowers with a high credit rating or equity could be first to snap up available stock at a competitive price. 

Millennials Are Nesting

Any prediction for 2021 would be wise to keep an eye on those turning 30 or thereabouts in the year. Millennials now make up more than 50% of the mortgage market, and will be making the most real estate purchases in 2021. While this demographic won’t change the baseline numbers, millennials’ apparent preference for modest and mid-size lifestyles, as well as family-friendly housing, could usher in a shift in desirable areas. 

Out go the luxury city-center apartments, and in come roomier spaces in bustling downtown areas, or even self-sufficient homes in the suburbs. Any millennial looking to enter the lending market should pre-game, however. Given the lack of supply we’ve already mentioned, it’s essential to have the mortgage pre-approved and the financial dossier in order, because once a new property comes on the market, speed is of the essence. 

Housing Market Is On the Move

If remote working and Zoom were the default setting for much of 2020, their influence will continue to impact 2021. Expect many of the large corporations and employers to move out of expensive business district real estate in the coming year, either to relocate to more cost-effective locations, or to downsize completely with the support of a remote workforce. As a result, the most desirable properties are no longer those with a short commute to a soulless business district. Instead, home-buyers have their eye on the so-called 18-hour cities where there is life after 5pm. 

Plan Your Next Move With ScoreMaster

While you can’t always make predictions, at least you can make a plan. Whatever 2021 involves in lending terms, any borrower will be better equipped to ride out the uncertainty — or capitalize on the opportunity — with full visibility of their financial health. To help clients get the full picture, and start achieving their best possible credit score, see the tools and services from ScoreMaster

References:

  1. https://www.forbes.com/sites/dimawilliams/2020/07/10/is-it-going-to-get-better-before-it-gets-worse-five-experts-share-predictions-for-the-us-housing-market-in-the-second-half-of-2020/?sh=370955637026
  2. https://www.imf.org/en/Publications/WP/Issues/2020/09/25/US-Housing-Market-during-COVID-19-Aggregate-and-Distributional-Evidence-49775
  3. https://www.economist.com/finance-and-economics/2020/07/02/americas-housing-market-is-so-far-unfazed-by-recession
  4. https://www.huduser.gov/portal/ushmc/hmi-update.html
  5. https://uk.reuters.com/article/uk-global-property-poll/global-housing-markets-face-tougher-year-in-2021-reuters-poll-idUKKBN26M3ZC