Top 10 predictions: More rate drops in store for 2021

The 15-year rate will drop below 1% and jumbos will fall below 2%, according to Lazerson’s annual prognostications. Foreclosures and evictions will resume by the end of the year.

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | December 24, 2020

What’s in store for 2021?

Bet on real estate in the year ahead, which repeats what I said for 2020.

Rates are going to stay low. Demand is going to stay high. And President-elect Joe Biden will offer a tax credit for first-time homebuyers.

Here are my 2021 predictions:

1. The new strain of COVID-19 is going to make the economy worse in the near-term. Lower rates ahead. Locally, the 15-year fixed-rate mortgage (up to $548,250) will drop below 1%. We’re not too far away. The national average for the 15-year fell Thursday, Dec. 24, to a record low of 2.19%. Well-qualified borrowers can get a rate of 1.75% with less than 2 points.
2. Locally, the 30-year fixed will drop below 1.5% with points. Currently, we’re in the very-low 2’s with points, and the national average fell Thursday to a record low of 2.66%.
3. Locally, the 30-year jumbo fixed-rate (over $822,375 in Los Angeles and Orange counties and over $548,250 in the Inland Empire) will drop below 2% with points. Today you can get 2.75%. The 43% debt-to-income restriction for jumbos is going away. (Just about every mortgage lender in America will chase the big loans. More jumbo volume means more income for the same work since the dollars paid are based on loan size.)
4. The Freddie Mac 30-year fixed-rate will average 2.65%, vs. a 2020 average of 3.12%. Freddie’s average rate has been below 3% since July.
5. Average Freddie Mac mortgage rates will rise starting in the fourth quarter of 2021 as COVID-19 subsides and things start getting more normal. Get your mortgage business done before then. Rates will never be this low again.
6. Wall Street’s prime rate will remain 3.25% throughout 2021.
7. California’s eviction and foreclosure moratoriums will be extended through the third quarter of 2021. It will be lifted Oct. 1, and long lines will form at the courthouse.
8. Southern California’s median home price will increase 10%.
9. Southern California home sales will be flat compared with 2020.
10. Congress and President-elect Biden will approve a first-time homebuyer tax credit of at least $10,000.

So how did I do this year? Here’s my score for 2020.

1. “The Freddie Mac 30-year fixed will average 3.4%.” It actually averaged 3.12%, 28 basis points lower. COVID-19. Who knew? Wrong.
2. “At some point in 2020, you’ll be able to capture a 30-year fixed at 2.875% without points.” No-point loans were as low as 2.625% in 2020. Correct.
3. “The median home price for Los Angeles, Orange, Riverside and San Bernardino counties will rise 8% from 2019.” As of November, median home prices were up 9%, according to Attom Data. Close enough. Correct.
4. “Southern California home sales volume will fall 8% from 2019.” Sales volume was down 3.9%, according to Attom. Wrong.
5. “The Federal Reserve will not touch short-term rates.” The prime rate dropped from 4.75% to 4.25% on March 4. On March 16 it dropped again to 3.25%. Wrong.
6. “Congress or President Trump will mandate a federal government guarantee on Fannie Mae and Freddie Mac debt before they are released from conservatorship.” Never happened. F&F are going to be in the federal coffers for a long, long time. Wrong.
7. “California and the rest of the country will enjoy a repeal of the $10,000 so-called SALT cap (federal tax deductions for state and local taxes).” Alas, wrong.
8. “Fog the mirror loans (qualify on just a credit score of 680 or better) will be reduced to as low as 20% down, whereas they were at 25% down for investor properties.” You can do them at 20% down this year according to one of my non-QM lending sources. Correct.
9. “One out of every four mortgages will be arranged by a mortgage broker.” The low was 7% in 2011. In 2020, mortgage brokers arranged 22% of all mortgages, according to the National Association of Mortgage Brokers. Close enough. Correct.
10. “Refinance volume will be 50% more than in 2019.” Refinances volume doubled, according to Attom Data Solutions (measured by Q1 through Q3 for both years). My estimate was too low. Wrong.

Freddie Mac rate news: The 30-year fixed-rate averaged 2.66%, the 16th record low of the year, and 1 basis point lower than last week. The 15-year fixed-rate averaged 2.19%, also a record low for the 10th time this year, and down 2 basis points from last week.

The Mortgage Bankers Association reported a 1% increase in loan application volume from one week earlier.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was an astronomical $324 more than this week’s payment of $2,212.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1 point: A 30-year FHA at 2.25%, a 15-year conventional at 1.99%, a 30-year conventional at 2.375%, a 15-year conventional high-balance ($548,251 to $822,375) at 2.125%, a 30-year conventional high-balance at 2.5% and a jumbo 30-year fixed at 2.75%.

Eye catcher loan of the week: A 15-year fixed at 1.75% with 1.99 points.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.