‘We don’t need rates to fall out of the sky’: Brokers optimistic despite Fed pause

It’s a message mortgage brokers and loan originators have delivered to their clients countless times: mortgage rates don’t rise and fall in direct correlation with the Federal Reserve’s policy.

That means borrowing costs for homebuyers and owners could still move in the days ahead even despite the Fed’s announcement Wednesday afternoon that it was holding its funds rate steady to start the year.

The direction of 10-year Treasury yields will be the key factor determining whether mortgage rates change – but any movement is likely to be minimal, with financial markets already having largely priced in this week’s decision.

Still, even though there’s currently no prospect of rates plunging anytime soon, mortgage brokers are taking a cautiously optimistic view of the market for 2026.

There will be plenty of twists and turns ahead, Jay Lessard (pictured, top left) of Sonoran Lending told Mortgage Professional America – but chances of a big jump in mortgage rates currently appear distant.

“Rates are more likely to ease modestly than to rise sharply,” Lessard said. “I believe we’ll see peaks and valleys throughout the year, which could be positive for those working with a professional who’s in tune with the market.

“Affordability pressures may slowly improve as rates come down from recent highs and home price growth slows. The unknown factors will be economic surprises such as inflation persistence, geopolitical events, and fiscal policy swings.”

Few borrowers now expecting rates to plunge

While plenty of borrowers held out hope for big rate drops in recent years, a growing number also appear comfortable with the current rate environment – or at least, the understanding that huge cuts aren’t likely.

But more certainty on the rate outlook is still needed, according to HB Mortgage Team’s Hunter Bolling (pictured, top right), particularly given the volatility that’s recently clouded the US economy.

“The single biggest factor is likely interest rates,” he said when asked about his outlook for the mortgage and housing markets in the months ahead. “We don’t need rates to fall out of the sky, but we need them to actually stick.

“We’ve fluctuated heavily over the last few weeks. When the ‘5.99%’ marketing hit a few weeks ago, the phones were ringing off the hook. We didn’t stick there for but a few days. We need this to stay for weeks or months at a time for things to actually shift.”

Lessard echoed that sentiment, noting that even a degree of certainty about where rates will lie during the year ahead could help move some homebuyers off the sidelines.

“Mortgage rate stability is crucial and more important than simply lower rates,” he said. “Most buyers don’t require rates to return to 4% although that would certainly be welcome. They need confidence in the market.

“Volatility tends to slow activity: builders postpone new development, sellers remain on the sidelines (particularly those with low existing rates) and buyers hesitate. When rates drift modestly lower or even just remain range-bound and predictable, buyers are more willing to act, sellers list their homes, and overall transaction activity increases.”

Applications dip after rates tick higher

For now, some hopeful buyers and refinancers are taking a step back after a slight recent jump in interest rates, according to the Mortgage Bankers Association (MBA).

The most recent update to its seasonally adjusted index showed mortgage demand across the US fell by 8.5% last week after the average 30-year fixed rate increased to 6.24%.

That cooler demand was spurred by a big drop in refinance applications, which slipped by 16% week over week (but remained much higher than the same time last year).

While that marks sobering news for the mortgage industry after the brief elation of sub-six rates, Bolling said he’s urging brokers to look beyond the news and focus on what they can control.

“I’ve been coaching my team and agents across the country on this since January 1,” he said. “‘You control the narrative.’ There’s so much negativity going on in our industry: lawsuits, politics, false advertising and so much more.

“As a whole, we have to stick together and control the narrative to bring back the American Dream to life.”

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