This is primarily driven by high home prices and fewer refinances. In this article, we explore how rising home prices and a decrease in refinances are factors that are driving mortgage risk growth in 2021.
Home prices have been steadily increasing since 2012, with an overall average increase of 37% in median existing home prices over this period. According to the National Association of Realtors, existing home sales in February 2021 were 2.7% higher than the same time last year, despite declines in other areas of the real estate market. Additionally, the increase in median home prices for existing homes was 5.3%. As a result of the increased demand for homes, sellers are able to get a better price for their homes, and buyers are paying higher prices for them.
At the same time, refinancing activity has been significantly decreasing throughout 2021. The Mortgage Bankers Association reported that refinancing activity is down by 33% as compared to 2020. Refinancing activity peaked in March 2020 when the US experienced the effects of COVID-19 on the economy. Since then, it has been steadily declining. One of the main reasons for this decline is the rise in mortgage rates. According to the Mortgage Bankers Association, the average contract rate for 30-year fixed-rate conventional mortgages is 3.05%, which is up from 2.8% at the same time last year. This is making it more difficult for homeowners to refinance their homes and take advantage of the current low interest rates.
The decrease in refinances and increase in home prices are factors that are driving mortgage risk growth in 2021. Homeowners who bought during the recent surge in housing prices may find it difficult to refinance their mortgages due to the high mortgage rates. This may cause them to default on their loans, leading to an increase in mortgage risk. On the other hand, those who were able to refinance at the current low rates will benefit from the lower monthly payments and decreased mortgage risk.
In conclusion, high home prices and a decrease in refinances are both important factors that are driving mortgage risk growth in 2021. While homeowners may be faced with increased financial burden due to higher home prices, those who are able to refinance their loans at the current low interest rates will benefit from the lower monthly payments and decreased mortgage risk. As a result, it is important for homeowners to consider all options available to them carefully and weigh their options before making any decisions about refinancing their mortgages.
This article was contributed on Oct 23, 2023
