2027 Mortgage Rate Forecast Jumps to 7.5% as Buyer Demand Slumps

The forecast that changed in a month

People who have been putting off a home purchase until borrowing gets cheaper had a bad week. Fannie Mae's October economic and housing outlook now projects that the average 30-year fixed mortgage rate will reach 7.4% in the fourth quarter of 2026 and hold at 7.5% through 2027. That replaces the September outlook, which called for 6.8% this quarter and 6.7% next year.21 The October forecast was posted October 14 and carries an October 12 date. Its rate projections use market data as of September 30, so they show where expectations stood at one moment. They do not predict every weekly reading.27

The change is large. A month ago Fannie Mae expected rates to drift lower in 2027. Now it expects them to stay high all year. The main reason is the bond market. Mortgage rates follow the 10-year Treasury yield closely, and Fannie Mae now expects that yield to stay around 5.3% through 2027. That expectation leaves little room for mortgage rates to fall.21

The forecast follows weeks of sharply higher borrowing costs. Freddie Mac's weekly survey put the 30-year average at 7.40% on October 8. That was up from 7.28% a week earlier and 6.30% a year earlier.20 It was the seventh weekly increase in a row, starting from 6.65% on August 20, and the highest reading since November 2023.13 Realtor.com senior economist Joel Berner pointed to inflation expectations, a broad sell-off in bonds, and growing federal deficits that require more government borrowing.11

Forecasters agree on direction, not on degree

Forecasts for 2027 now vary widely, and when each one was made explains much of the gap. The Mortgage Bankers Association also expects rates to stay above 7% throughout 2027, though it sees them easing to 7.1% by the end of the year.21 Lenders appear even more pessimistic. A HousingWire survey of mortgage executives on October 1 found that 70% expected rates near or above 7.5% next year.30

Some forecasts are more optimistic. Zillow projects 7.1% by the end of 2026 and 6.5% by the end of 2027.22 The California Association of Realtors expects a 6.6% average in 2027, the same as the two prior years.25 One five-year model built on Deloitte's Treasury forecast puts 2027 rates near 6.2%. Its own pessimistic scenario, however, has rates breaking above 7% in 2027–2028.29

For comparison, the July consensus of Fannie Mae, the MBA, the National Association of Home Builders and Wells Fargo put 2027 rates between roughly 5.96% and 6.5%.23

My reading is that the lower forecasts mostly reflect older conditions. The bond sell-off pushed weekly averages from the mid-6% range to almost 7.5% within about seven weeks. Forecasters who have updated since then have moved up toward the 7% range. Buyers should plan around a rate starting with a 7 for most of 2027. They should treat 6.5% or lower as a good outcome, not the expected one.

The extra cost is real but moderate. On a $320,000 loan, financing at 7.5% instead of 6.7% adds about $173 a month to the $2,065 principal-and-interest payment.21

Mortgage applications show buyers stepping back

The weekly application data show the effect of higher rates. MBA applications fell 4.2% in the week ending October 2. It was the fifth straight weekly decline and left volume at its lowest level since January 2025.1 Applications fell another 2.7% the following week, when the MBA's conforming 30-year contract rate reached 7.50%. Purchase applications dropped 4% that week and were 16% below the same week a year earlier.4

Refinancing has nearly stopped. The refinance index is 56% below its level a year ago.8 MBA deputy chief economist Joel Kan said very few homeowners have a reason to refinance at these rates. He also said higher borrowing costs have driven many potential buyers out of the purchase market. Applications for FHA purchase loans, which first-time buyers rely on heavily, fell the most.2

Borrowers who are still buying are looking for ways to lower their payments. The share of applications for adjustable-rate mortgages rose to 10.5%, the highest in a year.8 Credit checks show the same weakness. The Xactus Mortgage Intent Index held steady at 102.7 after two weeks of declines but remains about 20% below its level a year ago.4

Fannie Mae's forecast extends this into 2027. It projects refinance originations falling from $655 billion in 2026 to $430 billion in 2027, a drop of about 34%. It expects total home sales to edge up only from 4.672 million to 4.713 million.27 That is a forecast of a market that stops falling, not one that recovers.

Home prices: slowing, but not falling

Many buyers hope that if rates won't fall, prices will. The data so far support only part of that hope. The National Association of Realtors reported a September median existing-home price of $417,500. That was up 1.3% from a year earlier, a record for the month, and the 39th straight month of annual gains.36 Redfin's measure uses a different method and put the median sale price at $393,895, also up 1.3%. That was the smallest annual increase since February.37 Realtor.com's median listing price fell 1.4% from a year earlier to $419,250, the 11th straight monthly decline in asking prices.32 The trackers differ partly because some measure closed sales, others measure asking prices, and others estimate the value of all homes.33

Forecasters expect price growth to slow further. Fannie Mae's house-price index forecast calls for 2.7% growth in 2026 and 0.6% in 2027.27 The MBA's September outlook projected 0.5% growth in the FHFA index for 2027.22 The experts in Fannie Mae's Home Price Expectations Survey were more optimistic, expecting about 2.2% national growth next year.24 None of these forecasts predicts a national price decline. Local markets are already moving differently. Sale prices in September rose 14.6% from a year earlier in San Francisco and fell 4.4% in Seattle and 2.6% in Denver.37

Calculated Risk's analysis is more pessimistic than the official forecasts. It noted that single-family inventory was up 4.8% from a year earlier while demand stayed weak. It argued that with rates near 7.5%, existing-home sales will probably slow and prices will come under pressure.9 I find that argument persuasive in the short term. Contracts signed during the rate spike are only now beginning to appear in the data. Redfin reported that pending sales fell 4% from August to September, the biggest monthly drop in more than three years, and fell in every major metro.37 NAR's September closings largely reflect contracts signed before rates rose, so the effect of higher rates has probably not yet shown up fully in sales and price figures.36

Lower prices are unlikely, but buyers have more leverage

The biggest change in the market is in bargaining power. Redfin estimated about 1.51 million sellers and fewer than 929,000 active buyers in September. That means sellers outnumbered buyers by 62.6%, the widest gap in records going back to 2013. Redfin classified 41 of the 50 largest metros as buyer's markets.32 About 60.5% of homes sold for less than their original asking price, and nearly one in five sellers with active listings cut their price.37 Builders are offering discounts as well. NAHB reported that 38% of builders cut prices in September.32

That creates a choice. Cotality chief economist Selma Hepp said mortgage rates will be the main driver of prices and sales in 2027. She also suggested that as expectations change from "lower rates next year" to "higher for longer," some buyers may decide to stop waiting.30 Redfin's long-range analysis shows how slowly affordability returns. If rates stay between 7% and 8% and prices keep rising about 2.1% a year, it would take at least a decade for housing costs to return to their 2018 level relative to incomes. Even the scenario Redfin calls the best case would not get there until early 2029.22

What buyers should plan for

The evidence suggests 2027 will not bring a clear improvement in affordability. Rates look likely to stay near 7% or higher, and national prices look likely to stay roughly flat rather than fall. Fannie Mae's revision, the MBA's similar view, and lender expectations near 7.5% all point the same way. The more optimistic forecasts were mostly made before the recent bond sell-off.2130

For buyers, waiting is unlikely to bring both lower rates and lower prices. The real benefit available now is leverage: less competition, more price cuts and more motivated sellers. That leverage is strongest in oversupplied markets such as Miami, Nashville and parts of Texas, where sellers outnumber buyers by more than two to one.32 Buyers who can afford today's payments will probably get better terms now than they would if rates fall and other buyers return. Buyers who can't afford them should not expect 2027 alone to solve the problem.