Prior to this year, the lowest average mortgage rate was 3.31% in 2012, as recorded by Freddie Mac.

Enter March 2020. A new record low was set as rates dipped to just 3.29% amid coronavirus fears.

And now Fannie Mae says rates could be even lower throughout 2021 — predicting an astonishing 2.9% average for the year.

To put things in perspective, the average 30-year fixed rate in 2019 was just shy of 4%.

Rates in the 2s could save homeowners thousands

Rates in the 2s would be a huge boon for home buyers and refinancers in the coming year, especially those recovering from the economic impacts of COVID-19.

For example, compare the monthly mortgage payment for a $250,000 house at 4% versus 2.9%.

With a full year of record-low mortgage rates, many homeowners would be able to refinance, reducing their monthly payments and overall loan interest.

And prospective home buyers might be able to afford a house sooner than they thought — or buy a more expensive home than they’d be able to afford if rates were higher.

Fannie Mae remains optimistic about the housing market

Due to the coronavirus pandemic, we’ve seen mostly ominous signs when it comes to the U.S. housing market.

Demand has started to take a beating, and housing supply could be taking a big hit on account of a sharp decline in housing starts.

Add to the mix a massive jump in unemployment, and the possibility of another housing crash has analysts fearing for the worst.

Yet Fannie Mae’s predictions remain stubbornly optimistic.

Despite the economic impact of COVID-19, Fannie Mae predicts U.S. home prices will continue growing this year and next year.

Despite a downturn in the current housing market, Fannie Mae expects existing home prices to grow by 2.5% between 2019 and 2021.

The median price of existing homes is expected to increase from $272,000 last year to $275,000 in 2020. Next year, the firm forecasts a median price of $279,000.

The agency sees a similar trend playing out in new home prices.

Fannie estimates the median price of a new home will increase to $326,000 in 2020 (up from $321,000 in 2019).

And it predicts the growth will continue into 2021 with median home prices hitting $330,000.

What the rate forecast means for home buyers

As one of the world’s largest mortgage agencies, Fannie Mae is known for having less-than-aggressive economists offering conservative predictions.

Yet Fannie Mae not only predicts big things for home prices through 2019, but also even lower mortgage rates through 2021.

Suffice it to say, homebuyers should take heed.

Why? For one, your purchasing power could go up – way up.

A 2.9% rate — instead of 3.9% — could raise your home buying power by $36,000.

Using 2019’s average rate of 3.9%, let’s assume the maximum loan amount for which you qualified was $275,000.

Using Fannie Mae’s projected rate of 2.9%, that means your affordability just jumped from $275,000 to $311,000.  

Translation? You would now be able to buy $36,000 more home but at the same monthly payment.

This is great news for homebuyers who won’t be in a position to buy a home until next year.

If Fannie’s forecasts are accurate, you don’t have to worry that you missed 2020’s all-time-low rates. They may be even better next year!

What the rate forecast means for refinancing homeowners

When rates are hitting all-time low levels as they’ve been lately, more often than not, the “bird in the hand” proverb applies.

After all, rarely in history have record low mortgage stayed low for a long period of time, nonetheless over the course of more than 12 months (like Fannie Mae predicts).

So normally, now would the ideal time to lock a mortgage rate or risk losing your chance to refinance.

But we’re far from a normal housing market. And when it comes to refinancing in the COVID-19 economy, special considerations apply.

For some, the circumstances might warrant waiting on a refinance.

Market volatility amid COVID-19 may continue and have residual effects on the economy yet to be seen or felt. That means some homeowners who are currently financially secure could face struggles in the coming months.

In addition, it’s become harder to get a new loan with moderate to low credit standing. Lenders are favoring top refinance candidates in the current environment.

The forecast for continued low rates is great news for those negatively impacted by today’s tightened underwriting standards.

The forecast for continued low rates is great news for those negatively impacted by today’s tightened underwriting standards.

If you haven’t been able to qualify due to lower credit scores, being self-employed, or other challenges making it difficult to qualify for traditional financing, the forecast for continued low rates means you haven’t missed out.

There are also plenty of good reasons to pursue a refinance now, if it makes financial sense for you.

• There’s no way to guarantee what’s ahead for mortgage rates. History shows that financial experts often get it wrong
• Rates are extremely volatile. In March, they hit the low 3’s but lenders raised rates by 1-1.5% in a matter of days
• Using an average rate of 3.3% (close to today’s rates), it’s estimated that approximately 50% of all homeowners could lower their rate by 0.5% with a refinance
• If rates drop to 3%, that estimate could jump from 50% to 70%. This could mean more homeowners flocking to refinance
• Increased refinance volume could once again impact refinance volume and lender capacity constraints. These constraints are likely to influence whether or not mortgage rates can even get to sub-3 levels

In short, rate forecasts look good. But a prediction is far from a guarantee.

And if rates fall lower, a sudden rush of refinance volume might delay closing times — and even force rates back up in short order.

So if you’re able to take advantage of today’s rates, you might not want to wait for the possibility of a 2% rate in 2021.