Will mortgage rates drop in 2026? According to leading economists and financial institutions, the answer is a cautious yes. With the Federal Reserve signaling continued rate adjustments and inflation gradually cooling, most forecasters project the average 30-year fixed mortgage rate will settle between 5.9% and 6.5% by the end of 2026. While this represents modest relief from recent highs, rates are unlikely to return to the historic lows of the early 2020s anytime soon.
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Find a Top Agent Near YouWhat the Experts Predict for 2026 Mortgage Rates
Major financial institutions and housing authorities have released their projections for where mortgage rates are headed in 2026. While forecasts vary based on differing economic assumptions, a clear consensus has emerged: expect gradual improvement, not dramatic declines.
Fannie Mae's Economic and Strategic Research Group, led by Chief Economist Mark Palim, projects the 30-year fixed mortgage rate will start 2026 at approximately 6.2% before declining to 5.9% by year's end. This would represent the first time rates dip below the 6% threshold since 2022, offering meaningful relief for prospective homebuyers.
The Mortgage Bankers Association takes a more conservative stance, forecasting rates to hold steady around 6.4% throughout the year. Their outlook reflects concerns about persistent wage growth and economic uncertainty that could keep Treasury yields elevated.
NAR Chief Economist Lawrence Yun offers a middle-ground projection, anticipating rates to average around 6% for the year. At the recent NAR NXT conference, Yun noted that while the Federal Reserve has initiated rate cuts, mortgage rates are influenced by multiple factors including inflation expectations, Treasury yields, and federal borrowing levels.
Why Forecasts Differ
Mortgage rate predictions depend on assumptions about inflation trajectory, Federal Reserve policy decisions, labor market conditions, and global economic stability. Even small variations in these assumptions can produce notably different rate projections. Treat all forecasts as informed estimates rather than certainties.
Historical Context and Rate Trajectory
Understanding where rates have been provides crucial context for where they might be heading. After reaching multi-decade highs above 7% in late 2023 and early 2024, mortgage rates have been on a gradual downward path.
The Federal Reserve cut its benchmark interest rate by 100 basis points in late 2024, setting the stage for gradual mortgage rate relief. However, Fed Chair Jerome Powell has emphasized that policy decisions remain data-dependent, and further cuts are not guaranteed.
At the October 2025 FOMC meeting, the Fed reduced its target federal funds rate to between 3.75% and 4.00%. Markets are currently pricing in expectations of additional cuts in 2026, though the pace and magnitude remain uncertain. According to Goldman Sachs Research, economic growth could accelerate to 2% to 2.5% in 2026, which may limit how aggressively the Fed can ease monetary policy.
Key Factors That Will Shape 2026 Rates
Several interconnected economic forces will determine whether mortgage rates meet, exceed, or fall short of current projections. Understanding these factors can help you make more informed decisions about when to enter the market.
Inflation Trajectory
The Federal Reserve's primary mandate is price stability, with a target inflation rate of 2%. Core Personal Consumption Expenditures (PCE) inflation, the Fed's preferred measure, stood at approximately 2.8% to 2.9% in recent readings. Most forecasters expect inflation to continue its gradual decline toward the 2% target through 2026, with Fannie Mae projecting the Consumer Price Index to reach 2.7% by year's end.
If inflation proves stickier than expected, particularly in sectors like housing, healthcare, and insurance, the Fed may slow or pause rate cuts. Conversely, faster-than-anticipated disinflation could accelerate the easing cycle.
Federal Reserve Policy
While the Fed does not directly control mortgage rates, its policy decisions heavily influence the bond market, which in turn affects mortgage pricing. Bank of America economists project the federal funds rate could reach a range of 3% to 3.25% by the end of 2026, assuming two additional cuts beyond current levels.
A change in Fed leadership adds uncertainty to the outlook. With Chair Powell's term ending in May 2026, the next Fed Chair's approach to monetary policy could meaningfully impact rate expectations.
| Economic Factor | Current Status | 2026 Impact on Rates |
|---|---|---|
| Core PCE Inflation | ~2.8% year-over-year | Declining toward 2% target could enable rate cuts |
| Federal Funds Rate | 3.75% - 4.00% | Expected to fall to ~3% by end of 2026 |
| 10-Year Treasury Yield | ~4.1% | Key driver; rates typically track 1.5-2% above |
| Unemployment Rate | 4.3% - 4.4% | Further softening could prompt faster Fed easing |
| GDP Growth | ~2% projected for 2026 | Moderate growth supports gradual rate decline |
Labor Market Dynamics
The employment picture plays a dual role in rate decisions. A cooling labor market, with unemployment expected to reach 4.4% to 4.6% by late 2026, gives the Fed room to focus on stimulating growth rather than fighting inflation. However, if job losses accelerate significantly, it could signal recession risk and prompt more aggressive rate cuts.
Recent Bureau of Labor Statistics revisions have revealed softer hiring than initially reported over the past 18 months, suggesting the labor market may already be cooler than headline numbers indicate.
Treasury Yields and the Mortgage Spread
Mortgage rates historically track about 1.5 to 2 percentage points above the 10-year Treasury yield. The "mortgage spread" represents this gap. During periods of market uncertainty, the spread can widen as lenders demand higher premiums. If spreads normalize from recent elevated levels, mortgage rates could decline even if Treasury yields remain relatively stable.
Three Possible Rate Scenarios for 2026
Given the inherent uncertainty in economic forecasting, it helps to consider multiple scenarios for how 2026 could unfold.
Inflation returns to 2%, the Fed cuts rates more aggressively, and economic growth remains stable without recession.
Gradual disinflation continues, the Fed makes two or three additional cuts, and the economy achieves a soft landing.
Inflation proves sticky, tariffs add price pressure, and the Fed pauses or reverses rate cuts.
As J.P. Morgan Research notes, the divergence between more dovish FOMC projections and more hawkish growth and inflation profiles suggests the recent policy actions should be viewed as "insurance cuts" rather than the start of an extended easing cycle. This means the Fed is prepared to adjust course if economic conditions change.
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Get Matched with Top AgentsWhat This Means for Homebuyers and Sellers
The projected rate environment for 2026 carries distinct implications depending on whether you are looking to buy, sell, or refinance.
For Homebuyers
If rates decline as forecasted, monthly payments on a median-priced home will become more affordable. According to Realtor.com projections, the monthly payment to buy a typical home could fall to 29.3% of median income in 2026, dropping below the widely-cited 30% affordability threshold for the first time since 2022.
However, waiting for lower rates carries risks. As Charles Goodwin, Vice President of Sales at Kiavi, notes: "You risk waiting for a small rate drop only to have it wiped out by a larger increase in home prices due to renewed demand." If rates fall meaningfully, competition among buyers will intensify, potentially pushing prices higher.
For practical guidance on securing favorable financing, see our guide on how to get the best mortgage rate.
For Home Sellers
Lower rates could bring more buyers into the market, potentially shortening days on market and supporting home values. NAR projects home prices will climb approximately 4% in 2026, supported by job growth and persistent supply shortages.
However, sellers should be aware that improved affordability could also unlock more listings as homeowners currently "locked in" to low rates become more willing to sell. About 80% of mortgaged homeowners currently have rates below 6%, creating a significant lock-in effect that has constrained inventory.
For Refinancers
If you financed a home purchase at 6.5% or higher in recent years, 2026 could present refinancing opportunities. Fannie Mae projects the refinance share of mortgage originations will rise from 26% in 2025 to 35% in 2026. Even a 0.5% rate reduction can meaningfully lower monthly payments and reduce total interest paid over the life of the loan.
The "Date the Rate, Marry the House" Strategy
Many financial advisors recommend buying when you find the right home at a price you can afford, with the expectation of refinancing if rates decline. This approach avoids the risk of trying to perfectly time the market while ensuring you secure a property that meets your needs.
2026 Housing Market Outlook
Mortgage rates do not exist in isolation. The broader housing market dynamics will shape whether rate improvements translate into better conditions for buyers and sellers.
Home Sales Projections
NAR Chief Economist Lawrence Yun forecasts a 14% nationwide increase in existing-home sales for 2026, projecting a total of approximately 4.13 million units. This would represent meaningful recovery from 2025's stagnant levels, which are expected to roughly match 2024's 30-year low of about 4.06 million sales.
Fannie Mae offers a more conservative outlook, projecting total home sales (new and existing) of 5.16 million in 2026, an increase but below some of the more optimistic forecasts.
Inventory Trends
Active listings are forecast to rise approximately 8.9% in 2026, according to Realtor.com, though this represents slower growth than the 15.2% increase observed in 2025. For-sale inventory is expected to remain about 12% below pre-2020 averages, an improvement from respective 19% and 30% deficits in recent years.
If you are considering entering the market, understanding these dynamics is essential. Our first-time home buyer guide provides comprehensive guidance for navigating current conditions.
Price Expectations
Home price growth is expected to decelerate. Fannie Mae projects the Fannie Mae Home Price Index will rise just 1.3% in 2026, down from 2024's 4.4% increase and 2025's projected 2.5% growth. This cooling could help offset the impact of still-elevated rates on overall affordability.
Notably, Realtor.com projects home prices will actually decline in 22 of the largest 100 U.S. cities in 2026, primarily in the Southeast and West regions that experienced pandemic-era price surges.
Projected 30-Year Mortgage Rate Timeline
Based on Fannie Mae Economic and Strategic Research Group projections
Smart Steps to Prepare for 2026
Regardless of exactly where rates land, you can position yourself for success by taking proactive steps now.
Strengthen Your Credit Profile
Your credit score directly impacts the rate you will qualify for. Borrowers with excellent credit (740+) typically receive rates 0.5% to 1% lower than those with fair credit. Review your credit reports for errors, pay down existing debt, and avoid opening new credit lines in the months before applying for a mortgage.
Build Your Down Payment
A larger down payment can help you secure better terms and avoid private mortgage insurance (PMI). If 20% feels out of reach, explore programs that accept smaller down payments while understanding the tradeoffs involved.
Get Pre-Approved
Pre-approval gives you a clear picture of what you can afford and signals to sellers that you are a serious buyer. In a competitive market, this can make the difference between winning and losing your preferred property.
Consider Rate Lock Strategies
If you find a home you love and rates are favorable, locking your rate protects you against potential increases during the closing period. Many lenders offer 30- to 60-day locks, with some offering longer periods for an additional fee.
Work with an Experienced Agent
A knowledgeable real estate agent can help you navigate changing market conditions, negotiate effectively, and avoid costly mistakes. For guidance on selecting the right professional, explore our resource on understanding mortgage types and work with an agent who can connect you with trusted lending partners.
Frequently Asked Questions About 2026 Mortgage Rates
Most forecasters consider sub-5% rates unlikely in 2026. The consensus range for year-end 2026 is between 5.9% and 6.4%. Rates would need significant economic disruption, such as a recession, to fall dramatically below these projections. The sub-4% rates seen during the pandemic era were exceptional and unlikely to return in the near term.
Timing the market perfectly is extremely difficult. If you find a home that meets your needs at a price you can afford with current rates, purchasing now and refinancing later if rates decline is often a sound strategy. Waiting risks higher home prices due to increased competition if rates fall, potentially offsetting any rate savings.
The Federal Reserve sets the federal funds rate, which is the overnight lending rate between banks. While the Fed does not directly control mortgage rates, its policy decisions influence bond markets, particularly the 10-year Treasury yield, which mortgage rates typically track. When the Fed signals rate cuts, bond yields often fall, pulling mortgage rates lower.
Several factors could push rates higher than projected: persistent or rebounding inflation, stronger-than-expected economic growth, increased federal borrowing, tariffs that raise consumer prices, or unexpected geopolitical events that disrupt markets. If any of these materialize, the Fed may pause or reverse rate cuts, keeping mortgage rates elevated.
If you obtained a mortgage at 6.5% or higher, 2026 could offer refinancing opportunities if rates decline to the projected 5.9% to 6.2% range. A rate reduction of 0.5% or more typically justifies refinancing costs. Monitor rates throughout the year and calculate your break-even point before proceeding. Fannie Mae projects refinance activity will represent 35% of mortgage originations in 2026.
In a falling-rate environment, adjustable-rate mortgages (ARMs) can offer lower initial costs that may continue declining. However, fixed-rate mortgages provide long-term stability and protection if rates unexpectedly reverse course. Your choice depends on how long you plan to stay in the home, your risk tolerance, and your financial flexibility.
Mortgage rate forecasts should be viewed as informed estimates, not guarantees. Over the past five years, forecasters have been surprised by a pandemic, historic inflation, and unprecedented rate hikes. Even sophisticated models cannot predict every economic shock. Use forecasts as one input among many when making decisions, and maintain financial flexibility.
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