Will Mortgage Rates Fall in 2026? Expert Predictions
Mortgage lending rates have fallen in recent months, sparking interest among would-be homebuyers fed up with high mortgage rates. But any hopes for even lower prices in the new year are likely to be dashed.
Housing experts expect mortgage rates to remain close to their current average through 2026. Redfin and Realtor.com both predict rates will reach 6.3% by 2026, while Bright MLS predicts an average of 6.15% by the end of the year. These forecasts put mortgage rates not much lower than their current rate of 6.22% – a big improvement over the 2022 peak of 7.04% but still well above the pandemic rate of 3% or less.
Although rates may remain above 6% in the new year, consumers can still get relief from high borrowing costs. According to Odeta Kushi, deputy economist at title insurance and settlement services provider First American Finance Corporation, further improvements in purchasing will come from elsewhere.
“We may see a gradual decline next year, but nothing dramatic,” Kushi said. “Income growth is outpacing housing price growth, allowing affordability to improve.”
With higher wages and slower price growth expected in 2026, those monthly mortgage payments will (almost) be easier to budget for.
What keeps mortgage rates high?
The two main factors currently influencing mortgage rates are pulling in opposite directions, according to Daryl Fairweather, chief economist at Redfin.
The first is inflation, which has reached a 40-year high of 9% by 2022, prompting the Federal Reserve to take action to lower rates. It did this by repeatedly raising the rate of government funds – the short-term interest banks charge each other for overnight loans. The central bank aimed to reduce consumer demand enough to lower the prices of goods and services.
A side effect of that policy was that mortgage rates rose as lenders passed on the increased costs to borrowers. Consumers still face the fall; inflation remains high, and mortgage rates have slowed.
The second factor is the labor market, which has shown signs of weakening this year. When the economy and employment are slow, the Fed typically lowers the federal funds rate to ease lending conditions and stimulate growth. As the cost of borrowing between banks decreases, so do loan rates.
Although inflation has slowed significantly since 2022, it remains above the Fed’s long-term target range of 2%, putting upward pressure on mortgage rates. Concerns about a possible slowdown in job growth, on the other hand, put downward pressure on rates, producing a stabilization that keeps prices stable.
Until inflation slows or the labor market breaks, Fairweather says, “we’re going to be stuck where we are when it comes to mortgage rates.”
What can lower loan rates?
While most forecasts call for mortgage rates to remain steady through 2026, several factors could push those rates below 6%.
So far, the economy has been able to withstand a major financial meltdown, but there are potential risks. Earlier fears of a recession caused by the newly imposed tariffs and the prospect of a slowdown in economic growth have faded – but they have not completely disappeared. Any significant economic shock, such as the bursting of a credit bubble, a sharp drop in consumer spending or a sharp increase in unemployment, can cause a recession and lead to lower mortgage rates.
Another major factor that could reduce mortgage rates is inflation falling to the 2% target set by the Federal Reserve. With consumer prices under control, the Fed is likely to respond by reducing the federal funds rate to a neutral level that does not slow or stimulate economic activity.
If that were the case, mortgage rates could fall into the low 6% or high 5% range, said Danielle Hale, chief economist at Realtor.com.
Overall, 2026 will improve slightly on 2025. If all goes as expected, buyers will have more purchasing power thanks to lower mortgage rates, and sellers won’t see a big drop in home prices.
“It’s a small improvement, but at this point, any improvement helps,” Hale said. “It’s going to be a market that leaves both buyers and sellers a little bit happier.”
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