Refinance Window Closing?

November 19, 2020
Refinance Window Closing
The average rate on a 30-year loan is expected to rise to 3.5 percent by the end of 2021.

American homeowners will refinance home loans worth nearly $1.8 trillion this year as they lock in historically low rates. However, the window of opportunity for refinancing into super-cheap loans could be closing. Many housing economists now expect rates on home loans to edge up gradually from recent record lows. Mike Fratantoni, chief economist at the Mortgage Bankers Association (MBA), said that he expects the average rate on a 30-year loan to rise to 3.5 percent by the end of 2021. If the scenario plays out as he predicts, refinancing will lose its appeal for many homeowners. The MBA expects refi volume to fall to $946 billion in 2021 and to $573 billion in 2022.

“Looking back on this, years from now, you will remember 2020 as an absolute banner year for this industry,” Fratantoni said. A 3.5 percent home loan is still low by historical standards. However, it would be high enough that far fewer homeowners would be enticed into refinancing. A key assumption in the MBA’s forecast is that the U.S. economy will continue its robust recovery. Unemployment soared to 14.7 percent in April but fell to 7.9 percent as of September. Fratantoni expects unemployment to continue to decline, hitting 7.5 percent this year and 6 percent next year. That’s still high, but well below the calamitous levels of joblessness early in the coronavirus crisis. A worldwide wave of stimulus packages also plays into the forecast. The U.S. government has spent trillions of dollars on such stimulus initiatives as generous unemployment benefits and forgivable loans to employers.

Source: BankRate