As Sam Khater, chief economist for Freddie Mac, points out, certain economic factors are set to begin shifting once again, and they’ll likely have negative results for spring homebuyers.

2020 was chaotic for everyone on many different fronts. It’s no surprise that the mortgage market followed that trend.

2020 in review

Throughout the year, there were record-setting lows in the market with the weekly average for a 30-year fixed mortgage rate falling all the way to 2.67% in December. There was also a drastic increase in total home sales in both new and existing sales, with numbers hitting upwards of one million units at an annualized rate in August — the highest in approximately fourteen years.

Even before the pandemic hit, there were hints that the 2020 housing inventory was in a bit of trouble. Typically, a four-to-five month supply of homes per month is what you need for an equalized housing market to persist. But January only had a 3.1-month supply. That did rise to more normal levels in April and May with 4.0 and 4.8-month supplies respectively, only to fall dramatically to a 2.7-month supply by September — almost half of what it should have been.

2020 housing inventory was down 32.5% compared to 2019, which is a big part of the reason why prospective homeowners have been struggling in the market. Additionally, the average home purchase price rose from $266,200 in January to $311,800 in September, and bidding wars resulting from a lack of supply are only driving prices higher.

The record lows from the mortgage market in 2020 also played a great role in how much action the housing market saw. In December alone, the 30-year-fixed-rate mortgage averaged a full 1.05 points less than it averaged in 2019. 15-year-fixed-rate mortgages were nearly the same, dropping from a 3.16%% average in 2019 to a 2.19% average in 2020. Similarly, the 5-year-Treasury-indexed hybrid adjustable-rate mortgage dropped from 3.46% in December of 2019 to 2.79% at the same time in 2020.

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What experts are predicting for 2021

Moving forward, most experts agree that the mortgage market will likely be stable throughout 2021. There is a chance that rates will marginally rise during the last half of the year, despite how 30-year fixed-rate mortgages once again hit another record low, dropping to 2.65% between the end of December and the beginning of January. Comparatively, in January of 2020, that same rate was nearly an entire point higher at 3.64%.

Lawrence Yun, chief economist with the National Association of Realtors, believes rates may reach 3%—a slight increase from the 2.7% all-time low rate for 30-year fixed-rate mortgages in 2020. He notes that the Federal Reserve, while not directly controlling mortgage rates, has “indicated they want to pursue this low-interest policy for a long period, over the next two or three years.”

Danielle Hale, chief economist for, agrees that rates will “stay fairly low — right around 3% — for the first half of the year.” However, she believes these rates will likely rise to roughly 3.4% if access to a successful COVID-19 vaccine is effectively distributed to the general population. However, despite the historically low averages you’ll continue to see, the market still has the potential to drastically shift. Hale comments that compared to where the country is now, a 3.4% raise will constitute a significant increase, noting further that it would be 70 basis points above its current position.

Len Kiefer, deputy chief economist with Freddie Mac, notes that mortgage rates will be “relatively flat” in 2021, but may, as Yun and Hale suggest, “bounce around a bit” and be slightly higher at the end of the year. Like Hale, he notes that the key factor in mortgage rates and their predictions for 2021 will be whatever happens with the pandemic. “If the economy opens up,” Kiefer says, “we may see interest rates start to rise a little bit,” but if uncertainty persists, rates will mirror that by falling again.

The Mortgage Bankers Association (MBA) more conservatively predicts that rates will reach 3.3% in 2021 and rise to 3.6% in 2022. Mike Fratantoni, the MBA’s chief economist, believes these rates will rise even higher, depending on which way the Senate seats in Georgia rest after the January election. Meanwhile, the experts at Fannie Mae predict that the 30-year-fixed-rate mortgage will hold steady between 2.8% and 2.9% throughout 2022

Back in October of 2020, Freddie Mac predicted that you would see a slight decrease in mortgage rates, falling from 3.2% to 3.0%, But with the world’s outlook on COVID-19 brightening as vaccines are created and approved for mass distribution, there is every chance that you’ll see those rates, slowly but surely, begin to climb again as 2022 draws nearer.

As Sam Khater, chief economist for Freddie Mac, points out, certain economic factors are set to begin shifting once again, and they’ll likely have negative results for spring home buyers. The record lows you’ve been seeing in the housing market have driven thousands of people to the housing market. While these new homeowners will enjoy the benefits of their low fixed-rate mortgages, many more people are missing out on those same benefits due to a lack of supply.

This shortage had already started increasing purchase prices before the pandemic began, but Khater points out that these ever-rising prices could “intensify the squeeze on potential purchasers” when they enter the spring home-buying season.

Key takeaways

Overall, the 2021 mortgage market is shaping up to set to rights all of the chaos of 2020 with a market that plans to hold rates as steady as it can while working to keep those same rates low, providing excellent options to potential homebuyers and assorted loan-takers alike.

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Jack Wolstenholm - Head of Content Marketing

Jack is the Head of Content Marketing at LeverageRx, the personal finance company that simplifies how healthcare professionals shop for financial products and services. A Creighton University graduate and former advertising creative, he has written extensively about topics in personal finance, work-life, employee benefits, and technology. His work has been featured in MSN, Benzinga, TMCNet, StartupNation, Council for Disability Awareness, and more.

Mortgage LoansPublished January 11, 2021