Many people who bought a home within the last 24 months assumed they'd soon be able to refinance to a lower mortgage rate. But those lower rates never turned up.
And now, many of these homeowners face acute financial stress, according to Truework's 2026 Recent Home Buyer Survey, published last week.
"Our research shows that many buyers are qualifying based on one payment while planning their financial future around another, even gambling on a rate cut that might never come," said Randy Lightbody, head of mortgage at Truework, in a statement.
"Affordability is no longer just about getting into a home," continues Lightbody. "It's about staying there, and many of today's buyers are making life-changing decisions based on a bet that may not pay off."
The Rate Threat to Recent Home Buyers
The Truework survey reveals that half of recent homebuyers say their mortgage becomes unsustainable without a lower rate. And many are having to take drastic steps to keep their homes. Of those who've bought a home with a mortgage within the previous two years:
- 88% believe one common financial setback ( job loss, big medical bill, significant home repair, etc.) could challenge their ability to make their monthly payments
- 85% say that being able to refinance within the next three years is crucial to their financial health — up from 56% in last year's survey
- 40% report they'll need a second job if they can't refinance within 3 years
- 21% would dip into retirement savings if they can't refinance within 3 years
Already, more than half of recent homebuyers are economizing on lifestyle choices such as travel (55%) and restaurant meals (64%).
And nearly one in three (32%) are cutting further, slashing their spending on essentials such as food, health, clothing, and hygiene.
Meanwhile, half (49%) of respondents said they were cutting spending on hobbies. And one in five (20%) were reducing their retirement savings.
Not an Irresponsible Gamble
Home buyers weren't being dumb when they bet on mortgage rates falling. Indeed, those rates did fall.
Looking at the chart (click the 3-year tab) on Freddie Mac's Primary Mortgage Market Survey®, the average weekly rate for a 30-year fixed-rate mortgage peaked at 7.04% in January 2025, re-peaked in May (6.89%), probably as a result of new tariffs, and then began a downward trend.
That lasted, with a few ups and downs along the way, until Feb. 25, 2026, when they dipped just below 6%, at 5.98%. There was every reason to expect they'd carry on heading lower.
But then, three days later, on Feb. 28, the Iran war started, wholly unexpectedly. And last week they stood at 6.58%, their highest in 11 months.
None of this is the homebuyer's fault. Suppose someone was purchasing in April 2025. Mortgage rates averaged 6.8% in March, and Fannie Mae's housing forecast for that month projected them to fall to 6.0% or 6.1% throughout 2026.
If Fannie had been proved right, as most rate observers expected, buyers would now be congratulating themselves on a worthwhile rate-and-term refinance, which would have slashed their monthly payments. But neither they nor Fannie knew about the coming conflict.
Why Mortgage Rates Have Been Rising
It's not that the bond market that determines mortgage rates has any particular issues with war; it's entirely amoral. No, it worries about two things emerging from the war:
- Higher inflation
- An increased deficit
The higher inflation is largely a result of disruptions to the delivery of oil, gas and diesel supplies. On the day this was written (Jul. 27), the AAA put the average price of a gallon of Regular gas at $4.1100 a gallon, up from $3.8780 a week ago, and $3.1450 a year ago.
Things were even worse for diesel, which is used to transport most goods and raw materials overland, and which has an appreciable effect on wider consumer prices. It stood on Jul. 27 at $5.2960 a gallon, up from $5.1080 a week ago, and $3.7350 a year ago.
Meanwhile, the federal deficit was already painfully high. According to Congressional Budget Office projections, "The federal budget deficit in fiscal year 2026 is $1.9 trillion and grows to $3.1 trillion by 2036. Relative to the size of the economy, the deficit is 5.8 percent of gross domestic product (GDP) in 2026 and grows to 6.7 percent in 2036, which is greater than the 3.8 percent deficits averaged over the past 50 years."
That projection was dated Feb 11, before the war broke out. Last week, "Secretary of Defense Pete Hegseth and Joint Chiefs Chairman Gen. Dan Caine argued for an additional $67 billion" in war funding in Congressional testimony, according to PBS.
All bond markets hate too-rapid inflation and high deficits. The inflation eats into the fixed income that bonds deliver.
And government deficits compete with mortgage bonds (aka mortgage-backed securities, or MBSs). And, as with any market, buyers demand a better deal when there's a glut of a product. For bonds, that means a higher yield, and for MBSs it translates into higher mortgage rates.
When Will Mortgage Rates Fall?
We looked at three forecasts from specialist economists who focus on mortgage rates. As we saw with Fannie's forecast from last April, even the most expert economists with the most sophisticated computer modeling tools have a pretty patchy record for accurate forecasting — but they're all we have to go on.
Here are the three forecasts for average 30-year, fixed-rate mortgage rates, all from this month:
- Fannie Mae — Rates will average 6.3% in 2026 and 2027
- Realtor.com — Rates will average 6.3% in 2026. No forecast for 2027
- Mortgage Bankers Association — Rates will average 6.5% in 2026, 2027, and 2028
The chances of these forecasts surviving contact with reality will largely depend on the duration of the war in the Middle East. A swift peace deal might easily see 6.3% rates later this year and through next. Indeed, after some months, we might see mortgage rates below that mark, perhaps dipping below 6% again.
However, if the war drags on for many more months, all those forecasts could end up looking wildly optimistic, with the possibility of 7%+ rates late this year and into 2027.
Let's hope those who need to refinance quickly get the opportunity to do so sooner rather than later.
