Low mortgage rates are helping rekindle homeowners’ motivation to refinance their loans, but
- a builder backlog,
- ongoing listings shortages and
- rising home prices are likely to prevent a similar stampede by homebuyers hoping to take advantage of the drop in rates.
But because mortgage rates are expected to stay low for the rest of the year, Fannie Mae’s Economic and Strategic Research group now expects lenders will refinance $2.5 trillion in mortgages in 2021, a $143 billion increase from last month’s forecast.
A surge in COVID-19 cases driven by the Delta variant and slower than expected second quarter growth have helped bring rates down.
Last month, Fannie Mae’s Economic and Strategic Research group was forecasting that rates on 30-year fixed rate loans would rise to 3.1 percent by the end of the year. Now they’re predicting that 30-year loans won’t broach the 3 percent mark until the third quarter of 2022.
But Fannie Mae economists have downgraded their forecast for home sales in the second half of 2021 — mainly because of the weaker outlook for new home sales, which fell 6.6 percent in June to an annual rate of 676,000 homes.
The drop could be a result of homebuilders turning down orders to give themselves time to catch up on construction backlogs.
Next year, new home sales are expected to rise to 871,000, as builders start catching up with demand. But while price appreciation is expected to cool, Fannie Mae also expects sales of existing homes to drop back to 2020 levels.
Lower interest rates are expected to provide a boost in refinancings, with Fannie Mae analysts estimating that around 51 percent of all homeowners with mortgages could potentially lower their interest rate by at least 50 basis points, or half a percentage point.
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