This year will likely mark a return to more normal levels of home-price growth from the highs of 2020, according to a new report from Arch Mortgage Insurance Company (Arch MI).
In its latest report, Arch MI said it expects rates to continue to rise, while the “unprecedented” demand for housing driven by the COVID-19 pandemic “will probably decline over the year.”
Read more: Arch MI updates RateStar tool
Additionally, Arch MI identified three key factors that it says should counter rising mortgage rates putting too much pressure on the housing market – a massive undersupply of existing homes for sale; new construction still below the levels prior to the Great Recession; and the Millennial cohort, the largest demographic group in the country, being at “prime homebuying age.”
“Consequently, a much more likely outcome of rising rates would be something akin to a replay of 2018, with rising rates combining with pandemic-driven housing demand subsiding to push down sales,” Arch MI said in its report. “If this were to play out, we could expect a slow return to long-term average levels of affordability, a slow movement back towards a more balanced supply and demand dynamic, and a moderation in home-price growth.”
“While home price growth was incredibly strong in 2020, historically low mortgage rates have meant that affordability was not stretched to the same extent for median-income homebuyers in large parts of the country,” said Rob Hardie, head of data analytics at Arch’s mortgage group. “However, with interest rates ticking up to start off 2021, the question naturally arises as to what this will do to affordability and how it will impact the housing market. We believe we have seen this before in 2018, and if 2021 plays out in the same way it would be a satisfactory outcome.”