Every year brings the promise of change, a fresh start. That is especially true this time. When the new year comes this time, it brings not only the warmest winter on record (probably) but also a new president, a new home refinancing fee, and very possibly the start of a coronavirus vaccination program and thus the beginning of the end of the calamity that defined our current year.

What does the new year mean for home buyers and home refinancing? What changes and what stays the same? We take a look.

Low Mortgage Rates to Keep Making History

We've been typing the phrase record-low mortgage rates for nearly all of 2020, as each month we watched average rates tick downward to historic levels. Freddie Mac released today a mortgage market survey that tracked the rate on a 30-year fixed-rate mortgage from 3.68% this time last year to 2.72% now.

Also, the 15-year fixed-rate mortgage averaged 2.28%; at the same time last year it was 3.15%. Tremendous savings can be enjoyed with a 15-year term, as we've shown you in another story, but the 30-year fixed remains the most popular mortgage in America.

Such low rates usually bring out home buyers in droves. You'd expect to see house hunters checking out homes and getting preapproved with lenders. But many Americans have been postponing home shopping for the duration.

Writing about how the Federal Reserve kept lowering benchmark interest rates to near-zero to support our economy in the pandemic, NASDAQ writes that "the lockdown, which resulted in a halt in business activity, created tremendous uncertainty in the minds of people, due to which they were not very keen on buying new homes."

Many people in the industry are wondering just how low mortgage rates can go. The answer seems to be 2.25% because any further drop would remove the profit motive for lenders.¹

Refinancing Will Grow Even More Popular—With a Catch

Instead of fielding applications from home buyers who want to take advantage of record-low rates, lenders are increasingly hearing from people thinking about refinancing. Competition is high for those customers while new home buyers wait out the pandemic. Refinancing is currently up 192%, according to the Mortgage Bankers Association.

The near year brings a new fee for refinancers (actually, the fee started in December 2020). Called the "adverse market refinance fee," it is a 0.5% fee that will be charged to refi loans sold to Fannie Mae or Freddie Mac. That means the fee applies to about two-thirds of all refinances. Both standard and cash-out refinance loans are subject to the fee, but it doesn't apply to home buying.

"The fee actually will be charged directly to lenders by the FHFA, who will then—most likely—pass it on to customers, "writes Natalie Campisi in Forbes. "The way in which borrowers will get charged might differ from lender to lender. For example, lenders might tack the fee on to the closing costs, add it to the loan amount or raise the interest rate. Since the fee is 0.5%, lenders might end up paying $500 for every $100,000 they borrow."

Low Housing Supply Could Be Helped by (gulp) Foreclosures

They say every cloud has a silver lining. A wave of foreclosures is expected in 2021 unless the federal government and lenders can coordinate their efforts to prevent it. Foreclosed homes go on the market for someone else to buy, and the market really needs more homes. We've been at record low housing inventory all year.²

Prices Will Go Up, But Slower

Low supply has allowed home sellers to raise their asking price, a trend that will continue into the new year. However, home prices aren't expected to rise at the same pace they have been.

NASDAQ reports that home prices are forecast to go up in 2021, "but at a slower pace than in 2020. Prices of existing homes are expected to rise 2.7% in 2021, compared with a 5.8% increase in 2020, according to an average of forecasts from Freddie Mac, NAR, and MBA."

Having risen nearly 6% in 2020, there's just not much higher home prices can reasonably go. Still, it's strange that prices haven't dropped in the pandemic.

"When the pandemic helped tip the U.S. economy into recession, most homeowners and home buyers braced for falling house prices," said the chief economist at Realtor.com, Danielle Hale. "That's what happened in the last recession. But that's not what we're seeing in today's market. We had a housing shortage already, and the pandemic has created conditions that have only worsened it."³

“Mortgage refinancing has quickly become the belle of the savings ball, with homeowners lining up to cash in on record-low mortgage interest rates.”

   —Forbes

Home Sales Expected to Pick Up

A vaccine program, a new administration in the White House, and an economy ever-closer to returning to "normal" are a few of the factors influencing forecasters' rosy outlook for home sales in 2021. Sales of existing homes are expected to increase 4.7% compared to 2020, to the tune of 6.2 million existing homes. Again, these numbers come from averaging the forecasts from Fannie, Freddie, NAR, and MBA.

Overall, the new year looks good for home buyers. Prices probably won't go down, but at least they shouldn't rise as fast as the year before. The interest rates we find around us will continue to be the envy of earlier generations of home buyers. Foreclosures could have the upside of adding much-needed inventory to the market and—who knows?—could help slow price hikes a bit. Every cloud has a silver lining.