The impact of low mortgage rates on the housing market

This is the third installment of our economist Q&A series. Every Tuesday in December, HousingWire has interviewed a top economist in the HW+ Slack channel. The 2021 housing market forecasts have focused on everything from home sales to mortgage rates.

In this installment, HousingWire interviewed Frank Nothaft, executive and chief economist at CoreLogic, on his forecast for next year. This article has been lightly edited for length and clarity. 

HW: In your commentary you mentioned interest rates will remain low for the foreseeable future. What impact this will have on the housing market?

Frank Nothaft: The housing industry is the most interest-rate sensitive sector in the economy.  When mortgage rates are low, they drive buyer demand and owner refinance, fueling home sales and home purchase and refi originations. We expect home sales in 2021 to be more than in 2020. In fact, we expect home sales relative to the housing stock, a measure of home “turnover”, in 2021 to be above the average annual turnover rate of the prior two decades.

HW: It sounds like we’re expecting another year of high home sales next year. In the battle of low housing inventory versus rising Millennial and other homebuyer demand, who will win and why?

Frank Nothaft: Both, to some degree. The record low mortgage rates have lowered the monthly P&I payment that Millennials face, helping to improve monthly-payment affordability. The low inventory has driven home prices higher, which means Millennials need to have a bigger nest egg saved up for the down payment and closing costs. But higher prices benefit the owners (many of whom are Baby Boomers!) who sell their homes.

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