Mortgage Rates Forecast Sees 7%-Plus Borrowing Costs Through 2027

Forecasters have given up on a quick drop in rates

For most of 2026, homebuyers were told to wait for cheaper mortgages. The industry's main forecasters now say that wait could run into 2028. In its October housing outlook, Fannie Mae projected that the 30-year fixed mortgage will average 7.4% in the fourth quarter of 2026 and 7.5% across 2027.26 The forecast a month earlier had been much lower: 6.8% for the fourth quarter and 6.7% for 2027.26 Before the war with Iran began in late February, Fannie Mae expected rates to average about 6% in both 2026 and 2027.2

The Mortgage Bankers Association reached a similar view. At its annual convention in Chicago, chief economist Mike Fratantoni said he expects the 30-year rate to average 7.3% in the fourth quarter and stay above 7% through the end of 2027.39 The MBA is a little more hopeful than Fannie Mae. Its path has rates easing to 7.2% for most of 2027 and 7.1% by the fourth quarter.6 The gap comes from their Treasury assumptions. Fannie Mae has the 10-year yield holding at 5.3%, while the MBA expects it to drift from 5.1% to 4.9%.6

The two forecasts differ by about a fifth of a percentage point. That matters to traders, but buyers will see little difference. Under either forecast, rates in the 6s are off the table for at least another year.

Why borrowing costs are stuck

The reporting points to three forces, and they work over different time spans.

The first is inflation. September consumer prices rose 3.7% from a year earlier, driven mainly by gasoline. Gas prices jumped 9.1% in the month and more than 34% over the year.2 The oil shock from the Iran conflict has reversed the early-2026 outlook.216 In February the 30-year rate briefly fell to 5.98%, its lowest since late 2022.16

The second is government borrowing. Fratantoni described the problem in two parts. Central banks are raising short-term rates because inflation is too high. Bond investors are pushing up long-term rates because deficits and debt are unsustainably high.3 Earlier this month the 10-year Treasury yield touched 5.36% during trading, the highest since 2002.3 Mortgage lenders price loans off that benchmark.16

The third force, AI, has received less attention. CNBC's analysis, as summarized by the Hindustan Times, argues that the low-rate era rested on low inflation, plentiful savings and weak demand for money. Today, heavy federal borrowing and huge private spending on data centers and power generation are competing for the same pool of capital.8 The same coverage notes that the Federal Reserve is no longer buying mortgage-backed securities, which removes a source of demand that held rates down during the pandemic.8

The AI argument is the most speculative of the three, and no forecaster cited here puts a number on it. Still, Fannie Mae's own projections support the broader idea. It expects consumer inflation to slow to 1.9% by the fourth quarter of 2027, yet it still has mortgage rates at 7.5% and the 10-year yield at 5.3%.46 If inflation cools and rates stay this high, something besides inflation is holding them up. Deficits and strong demand for capital are the likeliest explanations. In our reading, that is the most important point in the outlook: even if the oil shock fades, buyers should not count on rates falling much.

Global volatility adds to the pressure. Fratantoni said it raises perceived repayment risk, which widens the gap between mortgage rates and Treasury yields.9

Short-term relief

There was a little good news last week. Freddie Mac's survey for October 22 showed the 30-year average at 7.32%, down from 7.40%. It was the first weekly decline since late August.1314 The 15-year rate slipped to 6.68%.12 On Tuesday, the 10-year yield was just under 5%.11

The dip is small compared with the climb before it. The 30-year rate rose 69 basis points in about five weeks from early September and 142 basis points from the February low to the October peak.15 It is still 1.13 points higher than a year ago, when it averaged 6.19%.1215 By the Associated Press's estimate, the rise since February adds about $355 a month to the payment on a $400,000 loan.16

The Fed has not finished either. The MBA expects quarter-point hikes in December and in the first quarter of 2027, which would put the federal funds rate at 4.25% to 4.5%.7 Coverage disagrees on the timing of the next move. Homes.com reported economists bracing for a hike this month.2 A Reuters poll taken October 16–20, cited elsewhere, found 94 of 100 economists expect a hold on October 28, and all 100 expect a hike in December.25 The poll is more recent, so a December hike looks like the more likely path.

Home sales are barely moving

The National Association of Realtors reported that existing-home sales rose 1.5% in September to an annual rate of 3.99 million, down 2.2% from a year earlier.2722 NAR chief economist Lawrence Yun said August and September were the two slowest months of the year, and that rising rates mean fewer buyers can qualify.27 Sales have stayed near 4 million a year since late 2023, after running above 6 million earlier in the decade.27

Leading indicators look weaker still. Signed contracts on existing homes fell 7.3% in September to a record low. About 14.5% of pending deals fell through, the highest share outside the early pandemic months.22 Redfin found pending sales near their lowest level in records going back to 2021 and down from a year earlier in all 50 of the most populous metros.29 The MBA's Joel Kan said purchase applications are about 9% below January levels and fell off more sharply once rates passed 7%.9

The MBA expects single-family originations to fall 5% to $1.99 trillion in 2027. Refinancing takes most of the hit, and purchase lending is roughly flat.79 Fannie Mae cut its 2027 origination forecast by 18% to $1.8 trillion. It roughly halved its refinance estimate to about $430 billion and held purchase volume near $1.4 trillion.4 One HousingWire summary said Fannie Mae projects a 7.5% average for 2026. That conflicts with other coverage, which consistently puts the agency's figures at 7.4% for the fourth quarter of 2026 and 7.5% for 2027.46

Home prices are flattening but not falling

The price data look different depending on the measure. NAR's median existing-home price was $417,500 in September, up 1.3% from a year earlier and the 39th straight month of annual gains.27 Redfin's September median was $393,895, also up 1.3%.24 Its four-week data through October 11 showed growth slowing to 0.5%, and median asking prices fell 0.3%, the first decline since March.29 Adjusted for inflation, prices are already falling. One analysis notes home-price growth well below a consumer inflation rate above 3%.28

The national figures also mask big regional differences. NAR's Northeast median rose 4.7%, while the West slipped 0.3%.27 Redfin listed Seattle (-6.3%) and San Jose (-4.8%) among the biggest annual declines and San Francisco (+18.1%) among the biggest gains.29 Coverage of Sun Belt markets that boomed during the pandemic reports Austin prices down more than 8% from a year earlier.20

None of the coverage describes a crash. It describes a market where sales volume, not prices, is taking most of the adjustment. Kan argued that national price growth of around 2% suggests the housing shortage is less severe than often claimed. Realtor.com economists, by contrast, estimate the shortfall at more than 4 million homes.3 That disagreement matters. If the shortage is overstated, high rates could push prices down further than forecasters expect.

What buyers can do

Monthly payments remain the main obstacle. Redfin puts the typical buyer's payment at $2,777, close to a record.29 Principal and interest on a median-priced existing home has reached $2,313, the highest in ten years.28

Buyers do have more bargaining power than they have had in years. Inventory reached 1.60 million homes, up 4.6% from a year earlier and equal to 4.8 months of supply.27 A record 22% of sellers on Redfin cut their asking price.29 Builder confidence fell to 29 in October, its lowest since 2012.22 Builders are offering incentives, and Lennar said its incentives averaged about 12% of the sale price.28 The median new home now sells for less than the median existing home.28

Buyers are also changing how they borrow. Close to 10% of mortgage applications are for adjustable-rate loans, and many borrowers are paying points to lower their rates.3 Meanwhile, many current owners are staying put. About half of outstanding mortgages carry rates below 4%, which makes selling and refinancing hard to justify.9

For buyers, the forecasts mean timing the market is no longer a realistic strategy. If Fannie Mae and the MBA are right, waiting for 6% rates could mean waiting until 2028. In the meantime, more inventory, record price cuts and builder subsidies give buyers who can afford today's payments more leverage than at any time since rates began rising in 2022. Lower prices and seller concessions are more likely to help buyers in the near term than lower rates.