Recovery is Coming

March 23, 2021
Recovery is Coming
As of now, MBA expects sales of existing homes to average about 6.4 million in each of the four quarters of this year.

Joel Kan of Mortgage Bankers Association (MBA) says rising mortgage rates – in tandem with climbing Treasury yields – indicates the market and public are increasingly optimistic about the likelihood of an economic recovery. Greg McBride, chief financial analyst at, notes that in 2020, when the economic outlook was poor and inflation was falling, Treasury yields and rates on home loans fell to record lows. Now that expectations of a post-pandemic economic surge are taking hold, bond yields and interest rates are retracing some of last year’s decline. “The passage of President Biden’s $1.9-trillion stimulus package will likely add to this optimism, thereby pushing rates higher,” Kan notes. However, Kan points out that rates, as measured by the 30-Year Fixed Rate Mortgage benchmark, remain at historically low levels. “This rate fell below 3% for the first time in history last fall, and we’re still at around 3% now,” he says. “Even if the rate rises to 3.4% by the end of this year – as MBA forecasts – it will still be moderate by historic standards.”

Indeed, for context, the rate on the 30-Year Fixed Rate Mortgage averaged about 4% between 2010 and 2020, Kan points out. “Back in the 1980s, it was over 10%,” he adds. As such, Kan does not think rising rates will put a crimp on home sales this year, citing that inventory levels remain fairly tight. “However, rising rates could affect the timing of new purchases, as buyers might wait a little longer to see if rates ease somewhat,” he says. McBride cites that an improving economy is a “recipe” for strong home sales. “Whether rates are 3%, 3.5%, or even 4% matters less than whether prospective home buyers are confident in their jobs, income, and ability to make future mortgage payments,” he says. “Higher rates will take some momentum away from home sales, so the market might just be ‘sizzling’ instead of ‘red hot.’” As of now, MBA expects sales of existing homes to average about 6.4 million in each of the four quarters of this year (generally in line with sales recorded in the last two quarters of 2020), while sales of new homes should rise from 905,000 in the first quarter of this year to 979,000 in the fourth (above last year’s figures).

Source: Forbes