- Fannie Mae raised its 30-year fixed mortgage rate forecast to 7.4% for the fourth quarter of 2026 and 7.5% throughout 2027, compared with previous projections of 6.8% and 6.7%, respectively.
- US mortgage rates reached 7.56% on October 14, 2026, according to Mortgage News Daily, as September inflation accelerated to 3.7% and rising Treasury yields increased borrowing costs.
- Mortgage applications declined 2.7% in the latest week, while Fannie Mae cut its 2027 refinancing forecast to $430 bn and the Mortgage Bankers Association expects rates to remain above 7% next year.
Fannie Mae has sharply increased its US mortgage rate forecasts for the remainder of 2026 and throughout 2027, warning that elevated borrowing costs will continue to constrain housing demand as persistent inflation and rising government bond yields weigh on affordability.
In its October 2026 housing outlook, published on October 14, Fannie Mae’s Economic and Strategic Research Group projected that the average rate on a 30-year fixed mortgage would reach 7.4% in the fourth quarter of 2026 and remain at 7.5% across all four quarters of 2027.
The latest projections represent a substantial upward revision from September, when Fannie Mae expected mortgage rates to average 6.8% in the final quarter of 2026 and 6.7% throughout 2027.
The change amounts to an increase of 0.6 percentage points in the fourth-quarter 2026 forecast and 0.8 percentage points for 2027.
Mortgage rates have already moved above those expectations. Mortgage News Daily reported an average 30-year fixed rate of 7.56% on October 14, up from 7.46% the previous day, as financial markets reacted to unexpectedly strong US inflation data.
Freddie Mac’s latest mortgage rates survey, released October 8, showed the average 30-year mortgage rate at 7.40%, compared with 7.28% a week earlier and 6.30% during the corresponding period in 2025.
That was the highest weekly reading since November 2023 and marked seven consecutive weeks of increases.
The 15-year fixed mortgage rate also increased, reaching 6.73%, compared with 6.60% the previous week and 5.53% a year earlier.
The increase reverses the improvement seen earlier in 2026, when 30-year mortgage rates briefly fell below 6% in February.
The subsequent rise has been driven largely by higher Treasury yields, persistent inflation and volatility in global financial markets.
Mortgage rates generally follow movements in the yield on 10-year US Treasury securities rather than changes in the Federal Reserve’s benchmark interest rate directly.
Investors’ expectations for inflation, government borrowing requirements and future monetary policy therefore remain central to the direction of mortgage financing costs.
The latest CPI inflation figures provide little immediate relief. According to the Bureau of Labor Statistics, the US Consumer Price Index increased 0.6% in September 2026, bringing annual inflation to 3.7%, up from 3.4% in August.
Gasoline prices rose 9.1% during September, accounting for more than half of the monthly increase in the overall consumer price index. Shelter costs increased 0.4%, while core inflation, excluding food and energy, reached 2.6% year over year.
The higher-than-expected inflation reading reinforced market expectations that the Federal Reserve could raise interest rates again to contain price pressures.
The central bank increased its benchmark rate by 25 basis points in September, its first increase in more than three years, bringing the federal funds target range to 3.75% to 4.00%.
Following the October inflation release, investors increased their expectations for additional monetary tightening, although the timing of another increase remains uncertain.
The Mortgage Bankers Association (MBA) expects borrowing costs to remain elevated through 2027.
In its October 11 economic forecast, MBA projected that the average 30-year mortgage rate would reach approximately 7.3% in the fourth quarter of 2026 and remain above 7% throughout the following year.
The association expects the 10-year Treasury yield to average 5.1% in the final quarter of 2026 and remain close to 5% during 2027.
Mike Fratantoni, MBA’s chief economist and senior vice president for research and business development, attributed the outlook to persistent inflation, higher energy costs and mounting government debt.
“Inflation is too high, leading central banks to raise short-term rates,” Fratantoni said.
MBA expects mortgage and Treasury yields to moderate from their recent peaks but remain substantially higher than previously anticipated.
The association also forecasts two additional Federal Reserve rate increases of 25 basis points each, one in December 2026 and another in the first quarter of 2027.
Fratantoni projects US economic growth of 1.8% over the next year, with unemployment averaging 4.3% in 2027, compared with the current rate of 4.2%.
These projections remain subject to considerable uncertainty, particularly surrounding geopolitical developments, energy prices and financial market volatility.
Not all analysts expect mortgage rates to remain as elevated as Fannie Mae projects. TD Cowen researchers, in an outlook reported earlier in October, anticipated rates declining to approximately 6.8% by the end of 2026 and 6.6% in 2027.
That forecast preceded the October 14 inflation report, which intensified expectations of further monetary tightening.
The differences between forecasts reflect uncertainty surrounding inflation, Treasury yields and the Federal Reserve’s policy path.
Higher mortgage rates have already reduced activity across the US housing market.
According to the MBA’s October 14 Weekly Mortgage Applications Survey, total mortgage application volume declined 2.7% during the week ending October 9, on a seasonally adjusted basis.
Applications for home purchases decreased 4% from the previous week and were 16% below their year-earlier level.
Refinancing applications fell 0.4% during the week and were 56% lower than in the corresponding period of 2025.
The average contract interest rate for conforming 30-year fixed mortgages with loan balances of $832,750 or less increased to 7.50%, compared with 7.49% a week earlier.
The latest figures follow a 4.2% decline in total mortgage applications during the preceding reporting week, when refinancing activity fell approximately 8% and purchase applications decreased 2%.
Joel Kan, MBA’s vice president and deputy chief economist, said the combination of higher borrowing costs and weaker affordability was discouraging potential buyers and limiting refinancing opportunities.
Homeowners who previously secured mortgages at substantially lower rates have little financial incentive to refinance at current levels.
The increase in fixed mortgage rates is also encouraging more borrowers to consider adjustable-rate mortgages (ARMs).
According to the latest MBA survey, adjustable-rate loans accounted for 10.5% of total mortgage applications, up from 10.3% the previous week and the highest share since October 2025.
During the early pandemic period, when fixed mortgage rates repeatedly reached record lows, ARMs represented less than 3% of total applications.
Adjustable-rate mortgages generally provide lower initial interest rates, reducing monthly payments during the introductory fixed-rate period.
The average contract rate for a 5/1 ARM reached 6.54% in the latest MBA survey, compared with 7.50% for a conforming 30-year fixed mortgage.
The initial savings come with interest rate risk. Once the introductory period ends, mortgage payments can increase or decrease according to the loan’s adjustment terms and prevailing market rates.
Rising financing costs are affecting housing transactions as well as mortgage applications.
Zillow’s September 2026 housing market report showed newly pending home sales declining 8.5% from a year earlier and 11.2% from August.
The company’s preliminary estimates indicated that existing home sales fell 2.5% year over year, with higher mortgage rates and seasonal weakness reducing buyer activity.
Zillow also reported that the typical monthly mortgage payment had increased 6.7% over the preceding year, assuming a 20% down payment and excluding property taxes and insurance.
That increase occurred despite home values rising only 1% over the same period, according to the Zillow Home Value Index.
Separate data from the Federal Housing Finance Agency showed nationwide house prices increasing 2.6% in July compared with a year earlier.
The National Association of Realtors reported a modest recovery in completed existing-home transactions during September, with sales rising 1.5% from August to a seasonally adjusted annual rate of 3.99 mn.
Sales nevertheless remained 2.2% below their year-earlier level.
The median existing-home sales price reached $417,500, an increase of 1.3% from September 2025 and a record for the month.
Available housing inventory increased to 1.60 mn properties, equivalent to approximately 4.8 months of supply at the current sales pace.
Lawrence Yun, chief economist at the National Association of Realtors, warned that further mortgage rate increases would restrict the number of buyers able to qualify for financing. He also noted that rising inventory and longer marketing periods were improving buyers’ negotiating positions, potentially requiring sellers to reduce asking prices or offer incentives.
Zillow reported that 27.4% of homes listed for sale had undergone price reductions in September, compared with 26.2% a year earlier.
The housing slowdown is also changing expectations for mortgage lending volumes.
Fannie Mae’s October forecast projects total single-family mortgage originations of approximately $1.865 tn in 2027, down from the $2.279 tn anticipated in September.
The company also reduced its projected 2027 refinancing volume to $430 bn, compared with its previous estimate of $802 bn.
Purchase mortgage originations are forecast to reach approximately $1.435 trillion in 2027, indicating that refinancing will account for a smaller proportion of overall mortgage activity.
Fannie Mae expects total home sales to reach an annualized pace of approximately 4.713 mn in 2027, down from the 4.882 mn previously forecast.
The MBA’s outlook is somewhat less pessimistic on lending volumes. It expects total single-family mortgage originations to decline 5% to just under $2 trillion in 2027, compared with approximately $2.1 trillion anticipated for 2026.
Purchase mortgage originations are projected to increase 0.8% to $1.42 trillion, while refinancing volume is expected to decline 17% to $571 bn.
By loan count, MBA forecasts total mortgage originations falling 5.6% to approximately 5 mn loans in 2027, from 5.3 mn in 2026.
The association also warned that weaker lending volumes and higher operating costs would continue to pressure mortgage lenders, even as servicing operations benefit from higher outstanding loan balances.
Marina Walsh, MBA’s vice president and head of industry analysis, identified rising delinquencies and foreclosures, particularly among government-backed mortgages, as additional concerns.
Increasing financial stress across student loans, credit cards and automobile lending could indicate growing pressure on households, especially as housing affordability remains stretched.
For prospective homebuyers, the immediate outlook depends on the direction of inflation and long-term Treasury yields.
Fannie Mae’s latest rate projections were prepared using interest rate assumptions as of September 30, before the stronger-than-expected October 14 inflation release.
The latest data therefore introduce additional uncertainty into forecasts that already anticipate elevated mortgage rates throughout 2027.
With borrowing costs near their highest levels in three years, mortgage refinancing activity declining and pending home sales weakening, the housing market faces the prospect of another year of limited affordability improvement unless inflation and long-term interest rates ease.
