As we approach the end of the year, many are left contemplating the trajectory of mortgage rates in 2026. With the housing market in a state of uncertainty, the question arises: will we see a return to the 5% mortgage rate range? While it seems plausible, several economic factors are currently at play that could influence these rates significantly.
For the past four years, Dave Meyer has been sharing his insights on mortgage rates, and his predictions have often hit the mark. In this article, we will not only delve into Dave’s forecast for 2026 but also examine insights from leading economists including those from Fannie Mae and the National Association of Realtors (NAR). Understanding these expert opinions can provide clarity for buyers and investors alike.
The current landscape of mortgage rates
The housing market is experiencing a stagnation, with approximately 4 million transactions expected in 2025—this figure is a staggering 30% below the historical average. This slowdown is largely attributed to what many refer to as the affordability crisis. Even though factors like rising wages and declining home prices could potentially enhance affordability, the most significant driver remains the mortgage rate itself.
Why mortgage rates matter
Mortgage rates play a pivotal role in determining the overall health of the housing market. As affordability decreases, fewer buyers can enter the market, resulting in a slowdown in transactions. The landscape changes, however, when mortgage rates begin to decline. A reduction in rates would likely spur demand, breathing life back into the stagnant market.
Reflecting on the past year, 2025 has shown some improvement in mortgage rates. Starting the year with rates around 7.2%, the current average is now hovering between 6.2% and 6.4%. This decline is a positive sign for potential buyers who have been waiting for a more favorable lending environment.
Key variables influencing mortgage rates
When examining the factors influencing mortgage rates, two primary variables emerge: the yield on the 10-year US Treasury and the mortgage spread. To understand how these elements interact, it is essential to grasp the relationship between them.
Understanding yields and spreads
The 10-year Treasury yield serves as a benchmark for mortgage rates because it reflects the average duration of a mortgage before refinancing or selling. Investors compare this yield to the returns they could earn by lending to the US government, which is seen as a low-risk investment.
However, banks will not lend to homeowners at the same rate they would to the government. This is where the mortgage spread comes into play. It represents the additional compensation that lenders require for the higher risk associated with lending to individuals rather than the government. Historically, this spread averages around 2%, which is crucial for determining the final mortgage rate.
Looking ahead: what to expect in 2026
As we analyze the landscape for 2026, it is essential to consider the broader economic conditions that will impact bond yields and, in turn, mortgage rates. The two primary concerns are inflation and recession risks. When inflation expectations rise, bond yields tend to increase as investors demand higher returns to compensate for potential erosion of purchasing power.
Conversely, during times of economic uncertainty, the demand for safe investments like bonds increases, which can drive bond yields down. This interplay between inflation and recession creates a complex environment for forecasting mortgage rates.
In summary, while the Federal Reserve does play a role in influencing these rates, its impact is indirect. Factors like inflation trends and economic stability are more immediate influences on bond yields, which ultimately shape mortgage rates. As we continue to monitor these economic indicators, potential homebuyers and investors should stay informed about the evolving landscape of mortgage rates and be prepared for possible changes in the market.