Mortgage rates in a ‘healthier, more sustainable range’ would be welcome next year
With 2026 looming into view, few mortgage brokers or homebuyers are holding out hope on a huge drop in mortgage rates anytime soon.
Perched just above 7% in the opening weeks of this year, average 30-year fixed mortgage rates have fallen in the past 12 months – but not by much, sitting at 6.22% at time of writing.
After the Federal Reserve’s decision to trim its funds rate by 25 basis points last week, William Raveis Mortgage regional vice president Melissa Cohn told Mortgage Professional America plenty of mortgage market watchers were waiting for sub-6% rates as a likely catalyst for an uptick in purchase and refi activity.
But while mortgage professionals aren’t expecting a return to COVID-era rates, some say even a mild further decline would help boost buyer and homeowner confidence.
Samantha Shelton (pictured top), mortgage broker and president at Align Lending, described herself as “cautiously optimistic” about the 2026 outlook despite a big rate drop looking unlikely.
“If inflation continues trending down, I expect mortgage rates to gradually return to more historically normal levels,” she told MPA, “not 3%, but a healthier, more sustainable range.
“By 2026 I anticipate more inventory as rate-locked sellers regain confidence, steadier and more predictable buyer demand, wage growth continuing to help affordability and a balanced market that feels less volatile than recent years.”
Low COVID-era rates keeping potential sellers off the market
That so-called “lock-in effect” has been one of the most significant factors weighing against the US housing market during the past two years, with scores of buyers who took out a mortgage during the pandemic choosing to stay in place – even if they want to move – because of their low existing rate.
Last week, Fed chair Jerome Powell said in remarks following the central bank’s rate decision that the trend had kept a lid on housing market activity.
But while some homebuyers are holding out hope for lower rates and a possible improved affordability picture in the months ahead, that might prove wishful thinking and the wrong move, according to Shelton.
She’s been advising buyers against taking that approach if they’re already in a position to buy. “One thing I always stress: if rates drop significantly, prices will jump fast,” she said. “This is a historical pattern.
“When affordability improves, competition increases. That’s why I often tell clients it’s better to be early and refinance later than wait and enter the market with the Black Friday crowd. A buyer who purchases before the rush may get a better price and still benefit when refinance opportunities open.”
Analysts are optimistic about 2026 US housing market prospects
Another housing boom in the next 12 months is a distant prospect, but experts say a further downturn isn’t exactly likely, either.
Morgan Stanley’s private wealth management managing director Chris Toomey told CNBC this week that he saw cause for optimism in 2026, while JP Morgan sees “some growth” ahead, even if that’s likely to be subdued.
The National Association of Realtors (NAR), meanwhile, is even more optimistic – projecting that existing-home sales will spike by 14% next year.
Whatever the pace of the 2026 US market, Shelton described the idea of timing the market perfectly as “the biggest myth in real estate.”
She’s urging buyers not to sit on the sidelines if they can afford a downpayment, noting that they could be missing out on valuable years of wealth building and equity accumulation.
“It doesn’t exist,” she said. “The right time to buy is when it’s possible for you: when the payment is manageable, the home fits your family, and the long-term financial picture aligns with your goals.
“If you can, buy. If the rate improves later, we refinance. But what you can’t do is go back in time and buy the home before everyone else realized the opportunity.”
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