Mortgage Rate Forecast 2026: When Rates Could Drop Below 6% According to Fannie Mae

Mortgage Rate Forecast 2026: When Rates Could Drop Below 6% According to Fannie Mae

New projections from Fannie Mae suggest that mortgage rates could finally move below the 6 percent level in 2026, offering some relief to homebuyers after several years of elevated borrowing costs.

However, the outlook comes with an important trade-off. While lower mortgage rates can improve affordability, limited housing supply may continue to push home prices higher.

According to the latest forecast, the average 30-year fixed mortgage rate is expected to remain around 6 percent in early 2026, before gradually declining throughout the year. Projections show rates falling to about 5.9 percent in the second quarter, 5.8 percent in the third quarter, and around 5.7 percent by the end of the year.

Looking ahead to 2027, mortgage rates are expected to stabilize between 5.6 and 5.7 percent, suggesting a more favorable borrowing environment over time.

This updated outlook reflects expectations for slower economic growth. When the economy cools, demand for borrowing typically declines, and inflation pressures may ease. As a result, interest rates—including mortgage rates—tend to move lower.

Another key factor is the 10-year U.S. Treasury yield, which mortgage rates closely follow. Lower Treasury yields are expected in the coming quarters, which could help bring mortgage rates down as well.

But even as borrowing costs improve, the housing market faces a major challenge: limited supply.

Fannie Mae expects single-family home construction to decline by about 6.2 percent in 2026, particularly in the early part of the year. Fewer new homes entering the market could keep inventory tight, especially in high-demand areas.

When supply remains low and demand stays steady, home prices tend to remain elevated—offsetting some of the affordability benefits from lower mortgage rates.

There is some positive news ahead. Construction activity is expected to rebound in 2027, with single-family housing starts projected to increase by about 5.1 percent. Over time, this could help ease supply constraints and create a more balanced housing market.

For homebuyers, this creates a mixed situation.

On one hand, lower mortgage rates could mean lower monthly payments and greater purchasing power. On the other hand, continued competition for limited homes may lead to higher prices and faster-moving markets.

In simple terms, the housing market in 2026 may experience a “push and pull” effect—where improving borrowing conditions are balanced by ongoing supply shortages.

Looking ahead, several factors will determine whether this forecast holds true, including inflation trends, Federal Reserve policy decisions, economic growth, and housing construction activity.

For now, the outlook suggests that while mortgage rates may finally ease, affordability challenges in the housing market are likely to remain a key issue throughout 2026.

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Mortgage Rate Forecast 2026: When Rates Could Drop Below 6% According to Fannie Mae

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