As The Housing Market Boom Continues, What Lies Ahead For The Home Financing Market?



All eyes are on the housing market as everyone waits to see whether the boom will crash anytime soon. Since 2020, home prices have been on the increase in every state, and Americans have been contemplating suburb homeownership as they look for affordable home prices. According to estimates by real estate and mortgage analytics company Black Knight, home prices have averaged a 3.9 increase. In some states, they rose by as much as 5 percent. With younger homeowners grappling with increasing credit card and student loan debts, many of them are turning to external financing to achieve their homeownership dream. The change in consumer preferences for housing marketing combined with marked changes for the home financing industry in 2021 will no doubt give rise to significant changes in home financing options – and the way consumers choose to approach financing their next home. 

Mortgage Rates Will Creep Up In 2021 As Markets Recover

Many Americans looking to buy homes will not only feel the burden of rising house prices, but also slowly increasing mortgage interest rates. In the last year, the conditions have led to record low mortgage interest rates. The year kicked off with interest rates hovering around 2.65 percent for 30 year fixed rate loans, according to Freddie Mac’s weekly roundup. This kicked off a refinancing scramble as Americans rushed to capitalize on the lower home financing cost. Even those with poor credit scores or seeking bad credit mortgages due to adverse credit were able to take advantage of lowered acceptance criteria. Even before the instability of 2020, 41 percent of Americans had a FICO score below 700. With many taking a hard hit financially, the common roadblock to refinancing for homeowners has been lowered. Almost 30 percent of consumers have credit scores between 300 and 699, according to Experian.

Now, four months into 2021, they are slowly edging back up, and are set to continue that way. According to The National Association of Realtors, mortgage rates are expected to surpass 3.1 percent in 2021, while The Mortgage Bankers Association estimates that mortgage interest rates will average 3.3 percent. While climbing rates, it is expected that the refinancing boom will slow but not stop completely.

Veteran Affairs Backed Loans Will Continue To Pick Up Pace

In 2020, VA-backed loans skyrocketed. In 2020, the number of homebuyers using VA loans increased by 11.9 percent, while homeowners using VA loans to refinance jumped by a stunning 241 percent year on year. In fact, 28 cities in the country experienced an increase in VA loan usage by over 100 percent. This was partly spurred on by the changes to the VA loan program that have made it easier for veterans to access homeownership. Thanks to new law changes, veterans can now take advantage of no-cost limits and access homes in higher-priced areas. Now, veteran loans make up about 10 percent of the mortgage market, says Chris Birk, director of education at Veteran United Home Loans.

The Migration To The Suburbs Will Continue To Mitigate Costs

During the last year, one in 20 consumers has moved either temporarily or permanently from their home. Many of them have headed to rural or suburban areas to get more bang for their buck. According to Caliber Home Loans, mortgage applications for suburban homes have surged since 2020. In June, housing starts increased by 17.3 percent – the highest since 2006. The average mortgage taken by first-time homebuyers under the FHA scheme was $190,000. However, suburban areas like Alabama have an average house price of $161,377 – 15 percent lower than the mortgage amount. The significant cost savings on home financing will continue to fuel the move towards lesser discovered suburban areas in the country.

As the economy continues to recover from a tough year, home bidding wars are rampant across the country. As house prices continue to rise, the financing market will shift continuously in response to it – and you can expect many more changes to come.

Photo by Kindel Media from Pexels

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