Since the pandemic, mortgage rates have mostly been climbing. It’s looking like that trend is unlikely to reverse course in 2027.
In bad news for home buyers and sellers alike, economists at the Federal National Mortgage Association, commonly known as Fannie Mae, are now “predicting much higher mortgage rates through the end of 2026 and into 2027,” said CNBC. Stubbornly high inflation is a major driver, as is the bond market. Here is what to know.
Could mortgage rates finally fall next year?
Probably not. Fannie Mae recently revised its previous projections for mortgage rates to adjust them even higher. As of mid-October, “rates are expected to average 7.4% in the fourth quarter of 2026 before climbing to 7.5% in early 2027, and could remain there for the rest of the year,” said NerdWallet. Previously, in September, Fannie Mae “predicted that the average 30-year mortgage rate would be 6.8% in the fourth quarter and 6.7% in 2027.”
While Fannie Mae is certainly a major player in the industry, as one of two government-sponsored enterprises that backs mortgages, it is not the only one forecasting that rates will head this way. Mike Fratantoni, a chief economist at the Mortgage Bankers Association, has also predicted that “mortgage rates will remain elevated above 7% through the end of next year,” said Realtor.com.
Why have mortgage rates been persistently high?
There are a few major contributors. “Inflation is too high, leading central banks to raise short-term rates, while budget deficits and debt are unsustainably high, leading bond investors to push up longer-term rates,” said Fratantoni to MarketWatch.
Another contributing factor is that the “Federal Reserve also raised its benchmark rate for the first time in more than three years,” said CNBC. “Mortgage rates do not follow the Fed’s rate exactly, but they do react to how the central bank sees inflation going forward.”
How will elevated rates affect the 2027 housing market?
The current state of the housing market will likely foreshadow what is to come if rates stay around where they are now. As of this fall, “higher rates have already put the housing market in an early deep freeze,” with pending sales “down 8.5% in September year-over-year, according to Zillow,” said CNBC.
The reality is, the “higher mortgage rates go, the harder it gets for home buyers to qualify for a mortgage,” said MarketWatch. This has a domino effect, with home sellers in turn “struggling as buyers shy away from the market,” forcing price cuts. This can potentially provide a little more bargaining power for buyers who do decide to stay in the game.