Will Mortgage Rates Go Down in 2026?

After three years of elevated borrowing costs that have kept millions of Americans on the sidelines of homeownership, one question dominates conversations among prospective homebuyers, current homeowners, and real estate professionals alike: Will mortgage rates finally drop in 2026? The answer, according to leading economists and financial institutions, is nuanced—rates will likely decrease modestly but remain well above the pandemic-era lows that many still remember.

As I analyze the latest forecasts from the Federal Reserve, Mortgage News Daily, Freddie Mac, Fannie Mae, Morgan Stanley, and other authoritative sources, a clear consensus emerges: 2026 will be a year of gradual improvement rather than dramatic relief for borrowers.

Current State of 2026 Mortgage Rates

As of February 5, 2026, the average 30-year fixed-rate mortgage stands at 6.11%, according to Freddie Mac’s Primary Mortgage Market Survey—the industry’s longest-running and most widely cited rate tracker (Freddie Mac, 2026).

This represents a significant improvement from the 6.89% average recorded in February 2025 and a dramatic decline from the October 2023 peak of 7.79%.

For context, 15-year fixed-rate mortgages currently average 5.50%, providing borrowers willing to accept higher monthly payments with meaningful interest savings over the life of their loans.

While these rates remain substantially higher than the 2.65-3.25% range seen during the 2020-2021 pandemic period, they’re beginning to approach levels that economists consider more sustainable for a healthy housing market. The critical question is whether this downward trajectory will continue throughout 2026.

What Leading Economists Predict for 2026

The Consensus View: Gradual Decline to 6% Range

After surveying forecasts from major financial institutions, real estate organizations, and government-sponsored enterprises, a striking consensus emerges. Most experts predict mortgage rates will average between 5.9% and 6.4% throughout 2026, with the most likely outcome clustering around 6.0-6.3%.

Fannie Mae offers the most optimistic projection, forecasting the 30-year fixed rate will decline gradually throughout the year, ending 2026 at 5.9% (Fannie Mae, 2026). Their quarterly breakdown shows steady improvement:

• Q1 2026: 6.2%
• Q2 2026: 6.1%
• Q3 2026: 6.0%
• Q4 2026: 5.9%

Morgan Stanley strategists predict rates could drop as low as 5.50-5.75% by mid-2026, driven by an anticipated decline in the 10-year Treasury yield to approximately 3.75%. However, they expect rates to rise again in the second half of 2026 and into 2027 as economic conditions stabilize (Morgan Stanley, 2026).

The Mortgage Bankers Association (MBA) takes a more conservative stance, forecasting rates will hold steady at 6.4% throughout all four quarters of 2026 (MBA, 2026). This flat projection reflects expectations that inflation will remain above the Federal Reserve’s 2% target, limiting the central bank’s ability to cut rates aggressively.

Redfin and Realtor.com both project 30-year rates averaging 6.3% throughout 2026, representing a modest improvement from 2025’s 6.6% average but remaining well above historical norms.

Bankrate senior analyst Ted Rossman predicts rates will “bounce around 6%—sometimes a little lower, sometimes a little higher—throughout much of 2026,” with potential to dip as low as 5.5% during certain periods before rising again (Bankrate, 2026).

The National Association of Realtors (NAR) forecasts a gradual decline from mid-6% levels to potentially 6.0% by year-end, emphasizing that Federal Reserve rate cuts won’t translate immediately or proportionally to lower mortgage rates (NAR, 2026).

Understanding the Federal Reserve’s Critical Role

The Federal Reserve’s monetary policy decisions represent the single most influential factor affecting mortgage rates, though the relationship is more complex than many borrowers realize.

Recent Fed Actions and 2026 Outlook

After maintaining the federal funds rate at a 23-year high of 5.25-5.50% throughout much of 2024 to combat inflation, the Federal Reserve executed three quarter-point rate cuts in September, October, and December 2025, bringing the benchmark rate to 3.50-3.75% (Federal Reserve, 2026).

At its January 2026 meeting, the Federal Open Market Committee (FOMC) voted to hold rates steady, signaling a more cautious approach moving forward. In the accompanying statement, the Fed noted that “available indicators suggest that economic activity has been expanding at a solid pace” while acknowledging that “job gains have remained low, and the unemployment rate has shown some signs of stabilization” (Federal Reserve, 2026).

Critically, the Fed removed language suggesting greater concern about labor market weakness than inflation—a significant shift that indicates policymakers view their dual mandates of full employment and price stability as more balanced. This suggests fewer rate cuts are likely in 2026 than markets initially anticipated.

Current Fed projections from the December 2025 Summary of Economic Projections indicate the federal funds rate won’t return to the Fed’s long-run neutral rate of 3.0% until 2028 at the earliest. Market expectations, as measured by CME FedWatch futures, price in at most two quarter-point cuts in 2026, with some probability of no cuts at all.

Why Fed Cuts Don’t Directly Lower Mortgage Rates

A common misconception is that Federal Reserve rate cuts automatically translate to lower mortgage rates. In reality, fixed-rate mortgages track the 10-year Treasury yield rather than the federal funds rate—and these instruments often move independently or even inversely.

During late 2024 and early 2025, this disconnect was particularly evident. Despite three Fed rate cuts between September and December 2024, mortgage rates actually increased for several weeks as long-term Treasury yields climbed on concerns about persistent inflation and growing federal budget deficits.

The relationship works through investor expectations: if markets believe Fed cuts will reignite inflation, Treasury yields—and consequently mortgage rates—may rise even as the Fed lowers short-term rates. Conversely, if economic weakness drives Treasury yields lower, mortgage rates can fall before the Fed acts.

The Challenge of Persistent Inflation

Inflation remains the primary obstacle preventing more aggressive rate reductions. As of November 2025, the Personal Consumption Expenditures (PCE) price index—the Fed’s preferred inflation measure—showed annual inflation at 2.8%, well above the Fed’s 2.0% target.

Federal Reserve officials have repeatedly emphasized that inflation must demonstrate sustained progress toward the 2% target before additional rate cuts can be justified. Chair Jerome Powell’s term expires in May 2026, adding uncertainty to policy direction, though his likely successor is expected to maintain a similarly cautious approach to inflation fighting.

Key Economic Factors Influencing Mortgage Rates in 2026

Beyond Federal Reserve policy, several interconnected economic forces will determine mortgage rate direction throughout 2026.

The Bond Market and Treasury Yields

The 10-year Treasury yield represents the foundation upon which mortgage rates are built. Historically, mortgage rates trade approximately 1.5-2.0 percentage points above the 10-year Treasury. However, this spread widened to 2.5-3.0 percentage points during 2023-2024 as mortgage investors demanded higher returns to compensate for increased risk and reduced liquidity in mortgage-backed securities markets.

As of early February 2026, the 10-year Treasury yield hovers around 4.14%, with the mortgage rate spread at approximately 2.0 percentage points (Bankrate, 2026). For mortgage rates to fall significantly, Treasury yields must decline—and that requires either economic weakness that drives investors toward safe-haven bonds or genuine progress on inflation that allows the Fed to cut rates without reigniting price pressures.

Morgan Stanley strategists forecast the 10-year Treasury could decline to 3.75% by mid-2026 if economic growth moderates and inflation continues cooling (Morgan Stanley, 2026). Such a move would mechanically lower mortgage rates, assuming the spread remains constant.

Inflation Trajectory

Inflation has proven more stubborn than Federal Reserve officials anticipated. After peaking at 9.1% in June 2022—the highest level since 1981—inflation declined to around 3% by mid-2024 but has struggled to complete the final descent to the Fed’s 2% target.

Several factors continue applying upward pressure on prices:

Shelter costs remain elevated as rental markets adjust slowly and housing supply constraints persist. Shelter represents approximately one-third of the Consumer Price Index and has been the most persistent source of inflation.

Wage growth continues running above pre-pandemic levels, with average hourly earnings growing 4.0-4.5% annually—above the 3.0-3.5% pace consistent with 2% inflation when combined with productivity growth.

Policy uncertainty surrounding potential tariffs and trade restrictions could reignite goods inflation, according to Fed officials who note these effects as temporary but potentially meaningful near-term inflation drivers.

If inflation continues its gradual decline and approaches the Fed’s 2% target by late 2026, the path opens for additional Fed rate cuts and lower mortgage rates. However, if inflation stalls or reverses, the Fed will maintain higher rates longer, keeping mortgage borrowing costs elevated.

Labor Market Dynamics

The unemployment rate stood at 4.4% as of January 2026—near what economists consider the “natural rate” associated with full employment (St. Louis Fed, 2026). This represents a significant increase from the 3.4% low reached in early 2023 but remains historically moderate.

The labor market presents conflicting signals:

Positive indicators include low levels of layoffs, declining unemployment insurance claims, and rising job postings in December 2025.

Concerning trends include monthly job growth averaging just 29,000-50,000 in recent months, well below the 150,000-200,000 pace needed to absorb population growth, and job creation concentrated in just one or two sectors rather than broad-based expansion.

A weakening labor market typically drives mortgage rates lower as economic concerns push investors toward safe Treasury bonds. However, the tradeoff is concerning: borrowers benefit from lower rates but may face job insecurity that makes homeownership riskier.

Economic Growth and Recession Risk

The U.S. economy has demonstrated remarkable resilience, growing at or above its long-run trend rate of 2.0-2.5% annually despite higher interest rates. This strength has surprised many economists who predicted recession in 2023 or 2024.

Supportive factors include strong consumer balance sheets, elevated stock market valuations providing wealth effects, tight credit spreads indicating healthy lending conditions, and solid corporate profits supporting business investment.

Headwinds include reduced consumer savings relative to pandemic-era highs, elevated interest rates increasing debt service costs for households and businesses, and potential policy shifts creating uncertainty for long-term planning.

If the economy slides into recession during 2026—a scenario most economists assign 25-35% probability—mortgage rates would likely fall sharply as Treasury yields plunge. However, weak economic conditions would undermine the benefit of lower rates if employment and income growth suffer.

What This Means for Homebuyers and Homeowners

For Prospective Homebuyers

The modest rate improvements forecast for 2026 translate to real affordability gains. For a $400,000 home with 20% down payment:

• At 6.6% (2025 average): Monthly payment of $2,042
• At 6.3% (2026 forecast): Monthly payment of $1,979
• At 6.0% (optimistic scenario): Monthly payment of $1,918

The difference between 6.6% and 6.0% represents $124 monthly or $1,488 annually—meaningful savings that could help thousands of households qualify for mortgages.

However, Danielle Hale, Realtor.com chief economist, cautions that “a lot of the challenges that the housing market has been grappling with—the lack of affordability and the ‘lock-in effect’ on existing homeowners—are still going to be present in 2026, but the grip is kind of loosening.”

The “lock-in effect” refers to current homeowners with 3-4% mortgage rates from 2020-2021 who are reluctant to sell and take on new mortgages at 6%+. Until the rate differential narrows substantially, housing inventory will remain constrained.

For Current Homeowners Considering Refinancing

Refinancing activity surged 117% year-over-year as of late January 2026, according to Mortgage Bankers Association data, as rates approached multi-year lows. However, the calculus varies dramatically based on individual circumstances.

Strong refinance candidates include those with rates above 7.0% who can drop to 6.0-6.3%, borrowers seeking to eliminate private mortgage insurance by switching loan types, and those wanting to convert adjustable-rate mortgages to fixed rates for stability.

Should probably wait includes homeowners with rates below 5.5% who are unlikely to see meaningful improvement in 2026, and those planning to move within 2-3 years who won’t recoup closing costs.

Expert Prediction: A Measured Outlook

Synthesizing the extensive economic research and expert forecasts, our prediction for 2026 mortgage rates incorporates both the most likely scenario and potential variations:

Base Case Scenario (70% probability): The 30-year fixed mortgage rate will average 6.0-6.3% throughout 2026, with quarterly volatility creating opportunities for borrowers to secure rates in the high 5% range during favorable periods—likely in spring or early summer. We expect to see rates dip below 6.0% temporarily but not sustainably, as persistent inflation above 2.5% limits Federal Reserve rate cutting.

Optimistic Scenario (20% probability): Inflation falls faster than expected, reaching 2.3-2.5% by mid-year, enabling the Fed to cut rates more aggressively. Combined with modest economic slowing that drives Treasury yields to 3.6-3.8%, mortgage rates could average 5.7-5.9% in Q3-Q4 2026.

Pessimistic Scenario (10% probability): Inflation reaccelerates to 3.5%+ due to policy changes or external shocks, forcing the Fed to maintain or even raise rates. Mortgage rates could climb back to 6.7-7.0% by year-end, reversing recent progress.

Our forecast aligns most closely with Fannie Mae’s gradual improvement model, projecting year-end rates around 5.9-6.1%—a meaningful improvement from current levels but far from the ultra-low rates of 2020-2021.

Recommendations for Monitoring Mortgages

For prospective homebuyers and current homeowners navigating the 2026 mortgage market:

Don’t wait for perfection. The consensus view is clear: rates will improve modestly but are unlikely to drop below 5.5% absent a recession. If you’re financially ready to buy and find the right home, current rates in the low 6% range are reasonable by historical standards.

Monitor the data, not the noise. Pay attention to monthly inflation reports (released mid-month), employment data (first Friday of each month), and Federal Reserve statements following FOMC meetings (eight times annually). These provide genuine signals about rate direction.

Remember the mantra: “Marry the house, date the rate.” Buy the home that meets your needs when you can afford it, knowing that refinancing opportunities will emerge if rates fall significantly. You can always refinance later, but the right home at the right time may not wait.

Consider the full picture. With home prices forecast to rise just 1-3% in 2026 according to most economists, modest price appreciation combined with gradual rate improvements means 2026 could offer better overall affordability than 2025—even if rates don’t fall as much as some hope.

The housing market of 2026 won’t deliver the dramatic relief many Americans seek, but it will offer incremental improvements that matter. For those ready to act, that may be enough.

References

Federal Reserve Board. (2026, January 28). Federal Reserve issues FOMC statement. https://www.federalreserve.gov/newsevents/pressreleases/monetary20260128a.htm

Freddie Mac. (2026, February 5). Primary Mortgage Market Survey. https://www.freddiemac.com/pmms

Mortgage Bankers Association. (2026). Mortgage finance forecast: December 2026. https://www.mba.org

Morgan Stanley. (2026). Will mortgage rates go down in 2026? https://www.morganstanley.com/insights/articles/mortgage-rates-forecast-2025-2026-will-mortgage-rates-go-down

St. Louis Federal Reserve. (2026, January 30). U.S. economic outlook and monetary policy. https://www.stlouisfed.org/from-the-president/remarks/2026/us-economic-outlook-monetary-policy-university-arkansas

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