Key highlights from this report:
- 30-year fixed mortgage rates are hovering at 50-year record lows.
- FHA mortgage rate forecasts suggest a modest rise in 2021.
- Home buyers might see higher borrowing costs later this year.
- Home prices, meanwhile, continue to climb in most U.S. cities.
From a mortgage-rate perspective, 2020 was a great year for FHA loan applicants and home buyers. FHA mortgage rates declined steadily throughout last year, falling to one record low after another. Just when we thought they couldn’t drop anymore, they would prove us wrong.
During the first week of January 2021, FHA mortgage rates were averaging around 2.65% for a 30-year fixed,. The shorter 15-year fixed FHA loan held an average rate of around 2.16% during that same week. Both of those were all-time record lows.
So that’s where we are right now. But what about the future? What’s the forecast for FHA mortgage rates in 2021. Could FHA loan rates drop even lower in the coming months? Or will they start to rise, as we move further into 2021?
A trio of recent forecasts predicted that FHA mortgage rates could start to creep upward over the coming months. Those forecasts were issued by the research team at Freddie Mac, analysts from the Mortgage Bankers Association, and housing researchers from Realtor.com.
FHA Mortgage Rate Forecast: A Slight Increase in 2021?
During the first week of January, Freddie Mac reported the results of their latest nationwide survey of the mortgage industry. According to that report, the average rate for FHA and conventional mortgage loans across the U.S. was 2.65%, for the week of January 7, 2021.
The chart below (created by Freddie Mac) shows the average rate for a 30-year fixed home loan going back three years or so. You can see how that average declined throughout 2020, breaking one record after another.
They also suggested that FHA mortgage rates could start to rise gradually, as we move further into 2021.
According to the research team at Freddie Mac:
“A new year, a new record low mortgage rate. Despite a full percentage point decline in rates over the past year, housing affordability has decreased because these low rates have been offset by rising home prices. However, the forces behind the drop in rates have been shifting over the last few months and rates are poised to rise modestly this year.”
Freddie Mac isn’t the only group that expects to see higher conventional and FHA mortgage rates over the coming months. A recent forecast from the Mortgage Bankers Association (MBA) suggested the same thing. The industry group expects home loan interest rates to creep upward throughout 2021.
Here are the MBA’s 2021 predictions for 30-year fixed mortgage rates:
- First quarter: 2.9%
- Second quarter: 3.0%
- Third quarter: 3.2%
- Fourth quarter: 3.2%
Lastly, we have a mortgage rate prediction from the housing research team at Realtor.com. In a housing market report published on January 7, the nationwide Realtor association predicted that 30-year conventional and FHA mortgage rates could rise “up to 3.4% by year end.” (That’s the end of 2021 they’re talking about.)
Of course, these are predictions and not certainties. They’re the equivalent of an educated guess. So we have to take them with a grain of salt.
Home Prices Continue to Climb Across the U.S.
Home prices are another important trend for home buyers planning to use an FHA loan in 2021. And over the past few months, that trend has been mostly upward in nature.
To the surprise of economists, home prices in most U.S. cities continued to climb steadily throughout the coronavirus pandemic. That’s partly due to the record-low conventional and FHA mortgage rates mentioned above.
Today’s low interest rates provide a powerful incentive for home buyers who might’ve otherwise been hesitant to enter the real estate market. This has bolstered demand for housing, at a time when inventory remains low.
According to the real estate data company Zillow, the median home value in the U.S. rose by around 7.5% during 2020. They expect prices to continue climbing. In January of 2021, the company predicted that U.S. home values would rise by around 10.3% over the next 12 months. Researchers from Realtor.com also predicted steady gains throughout 2021.
Granted, housing market conditions can vary significantly from one city or region to the next. But overall, prices have been following an upward trend over the past few years.
The point being: FHA mortgage rates are only a part of the picture. Home buyers considering a purchase in 2021 should also pay close attention to home-price trends in their area.
If house values have been rising steadily in recent months, there’s a good chance that will continue going forward. This gives you a strong incentive to purchase a home sooner rather than later.
Disclaimer: This article includes 2021 FHA mortgage rate forecasts provided by third parties not associated with the publisher. Real estate and mortgage-related predictions are the equivalent of an educated guess and should be treated as such.