As long as rates do not quickly climb above 4%, potential homebuyers will likely not be dissuaded by any increase.

The MBA is forecasting a record-breaking year of purchase origination volume. Demand for homes will be bolstered by an improving job market, favorable demographic trends, and mortgage rates that, while rising, are still low from a historical perspective. The unemployment rate, which was at 6.2% in February, is expected to drop to 4.7% by the end of the year, with hiring accelerated by a surge of consumer spending as pandemic restrictions are lifted. Another positive sign impacting MBA’s housing market forecast – increased vaccinations. The improving economic picture is putting upward pressure on mortgage rates and the MBA is forecasting that the Freddie Mac survey rate will reach about 3.5% by the end of 2021. So long as rates stay in this neighborhood and do not quickly climb above 4%, potential homebuyers will likely not be dissuaded by the modest increase. Meanwhile, refinance demand will certainly cool as the year progresses. Adding fuel to the rebounding economy and rising buyer demand is the fact that that most millennials are rapidly approaching peak first-time homebuyer age. The largest cohort of millennials are now 29, and historically, peak first-time homebuyer age is 32 or 33. The MBA is forecasting that this wave of young homebuyers will support the purchase market for at least the next few years. Interestingly, the National Association of Home Builders’ fourth quarter 2020 survey of prospective homebuyers showed that 27% of millennial respondents planned to buy a home in the next 12 months, up from 19% in the prior year’s survey.

Source: HousingWire