The Mortgage Bankers Association (MBA) kicked off its annual conference in Chicago over the weekend. And Mike Fratantoni, the association's chief economist, told the audience that he expects rates for 30-year fixed-rate mortgages (FRMs) to remain above 7% at least from now until the end of 2027.
Unfortunately, Fratantoni isn't alone, and plenty of other mortgage experts share his fear. Of course, that doesn't necessarily mean they'll be right; economies are notoriously unpredictable. But we reckon theirs is probably the most likely scenario for the time being.
A Range of Forecasts
"Is 8% next? Why mortgage rates have surged, and may stay higher for longer," was a headline on Yahoo! Finance over the weekend. Eight percent is certainly far from impossible. But it's higher than most are expecting.
Econforecasting has compiled what it believes is the consensus among mortgage rate forecasters. It shows the rate for 30-year FRMs peaking at 7.71% in June of next year, before drifting lower to 7.15% in October 2028.
Last Friday, Forbes published the likely range of mortgage rates from now until Nov. 20. Its best-case scenario showed 30-year FRM rates at the end of its forecast at 6.64%. Its worst-case scenario was 8.37%. Either is possible, but it puts the most likely rate on that date at 7.51%.
Fannie Mae's September forecast is an exception to the gloomy outlook. It shows that same rate averaging 6.5% this year and 6.7% in 2027. Well, that would be nice, wouldn't it?
Unfortunately, Fannie's forecast needs some context. In August, Fannie Mae Chief Economist Mark Palim was fired.
"Industry reports and internal rumors pointed to a ... forecast prepared under Palim that predicted higher mortgage rates and lower home sales through 2027 — an outlook that stood at odds with more optimistic forecasts favored by ... Federal Housing Finance Agency (FHFA) [Fannie's regulator's] leadership," according to a generated summary of an Inside Mortgage Finance report of Sep. 4. One could forgive Palim's successors for adopting a rosier view of the future than their ex-boss's.
Why Mortgage Rates Might Be "Higher for Longer"
"Higher for longer" has become a mantra in markets when describing interest rates in general. All rates, including mortgage rates, are forecast to be higher than previously expected for longer than previously expected.
So, what's changed? It's a perfect storm:
- Inflation is too high and looks set to get higher. We're due the September consumer price index on Wednesday, and markets are expecting the rate of inflation it shows to increase to 3.7% year over year, compared with 3.4% in August. That's way above the Federal Reserve's target of 2% annually. An appreciably higher-than-expected inflation rate on Wednesday could see mortgage rates soar.
- Governments around the world are borrowing too much. Mortgage bonds compete with government bonds for investors' money, and the extra supply means a lower price, which translates into higher yields and rates.
- Just like governments, AI companies are flooding the market with their own corporate bonds, adding to the competitive pressure and pushing up borrowing costs for everyone, including home buyers.
- The war with Iran (and, more recently, the conflict between the Houthis and Saudi Arabia) plus the Russian invasion of Ukraine have created exceptional geopolitical uncertainty that has likely contributed to nervousness among investors. And nervous investors demand higher yields, meaning higher mortgage rates.
- "The Fed doesn't directly control mortgage rates, but its adjustments to the short-term federal funds rate do influence their direction. Mortgage rates typically rise in anticipation of Fed actions, meaning expectations for a new rate-hiking cycle are already baked into existing rates," reports Yahoo! Finance. "Central bank officials have emphasized that further rate increases are likely warranted to bring inflation down from its current level."
Could Mortgage Rates Suddenly Fall?
Again, nothing's impossible. And it's not hard to envision scenarios in which the economy goes into recession, something that would likely cause the Fed to start cutting its rates, probably taking mortgage rates lower, too.
In its Sep. 29 U.S. Economic Forecast: Q3 2026, Deloitte imagines a worst-case situation in which the return on AI investments is much lower than currently anticipated, something that (we hope) is unlikely but perfectly possible.
"In this scenario, we assume an equity-market correction of 35% ... Real GDP grows by just 0.2% in 2027 before contracting by 1.2% in 2028," says Deloitte. "As the recession begins to take hold, we assume the US Federal Reserve embarks on a series of interest rate cuts. This helps stabilize the economy and equity markets. However, the subsequent recovery is assumed to be much slower than after previous downturns."
Yes, a recession or depression could see mortgage rates fall, depending on how inflation behaves. However, the cost to the country would be vast, and many first-time homebuyers may be unable to borrow because they're already unemployed or because they fear unemployment too much to commit.
Most of us, we suspect, would prefer high rates to such misery.
How First-Time Buyers Could React to Higher for Longer
To reiterate: nothing is certain. And it never is. Even if one waits several years to buy a home until the country enters a period of apparent economic calmness, there still won't be any real certainty. Stuff happens.
In the meantime, there are equally valid arguments for moving quickly and waiting to act on one's homeownership dreams.
If one were to buy a home now, they would at least be on the homeownership ladder. One might have to settle for less than one's dream home, and the first few years might be difficult. But when things get better, one may be able to move or refinance to a lower mortgage rate at will.
Remaining a renter is immediately more attractive. One has more financial flexibility if the economy gets worse. But when the housing market recovers, one will be among hordes who are trying to find a home to buy, and the great deals that are currently available probably won't be then.
Those considering buying now might wish to explore adjustable-rate mortgages (ARMs). At Sunday's MBA conference, Joel Kan, a vice president of the association and its deputy chief economist, remarked: "The buyers who are still in the market are increasingly turning to ARM loans or paying points to lower their rates for the life of the loan. The ARM share of applications averaged almost 10 percent over the past month, and MBA forecasts that it will remain over 9 percent through 2027. We plan to add the ARM share to our monthly forecast publication going forward."
