Mortgage Rates Will Remain Above 7% Through 2027, Top Economist Forecasts

Mortgage rates will remain elevated above 7% through the end of next year, according to the forecast of a top housing economist with the Mortgage Bankers Association.

"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 MBA Chief Economist Mike Fratantoni at the group's annual conference on Sunday in Chicago.

Fratantoni expects that the 30-year mortgage rate will average 7.3% in the fourth quarter of 2026 and remain above 7% through 2027, driven by elevated Treasury yields and more restrictive central bank policies.

As of last week, mortgage rates averaged 7.40%, a three-year high, according to Freddie Mac. Rates have climbed sharply since late February, as the global oil shock from President Donald Trump's war with Iran ripples through the economy, forcing the Federal Reserve to take action on resurgent inflation.

Last month, the Fed hiked its benchmark interest rate for the first time in three years. Fratantoni says he expects two additional quarter-point Fed hikes, one in December of this year and another in the first quarter of 2027. That would take the federal funds rate to a range of 4.25% to 4.5%, a level not seen since August 2025.

"Inflation remains well above the Fed’s target, and while the job market is not strong, we expect that the FOMC will continue to focus intently on pushing inflation down to its 2% inflation target,” Fratantoni said. The Fed uses higher interest rates to fight inflation, and lower rates to stimulate the job market, in line with the central bank's dual mandate of ensuring price stability and full employment.

In recent months, the Fed has been forced to respond to warning signs from the bond market, where the key 10-year Treasury yield touched 5.36% in intraday trading last week, the highest since 2002. The 10-year yield is a key benchmark for mortgage lenders, because most 30-year mortgage are refinanced or closed out through a home sale within roughly a decade.

Fratantoni forecasts that the 10-year Treasury yield will average 5.1% in the fourth quarter of 2026 and remain close to 5% through 2027.

The economist notes that there are several uncertainties associated with his forecast, with the potential for geopolitical or financial market shocks to further dampen consumer confidence.

Recession risks remain elevated, with Fratantoni pegging the probability of a recession in the next 12 months at around 35%.

"There are real risks that we get a significant slowdown," he said. "The financial markets are sort of priced to perfection along a lot of dimensions, and a lot of the [consumer] spending that is happening is based upon stock market values being as high as they are."

MBA projects fewer mortgage applications in 2027

By loan count, MBA economists forecast total mortgage origination volume will decrease by 5.6% to 5.0 million loans in 2027, down from the 5.3 million loans expected in 2026.

Purchase applications will decrease slightly from 2026 levels, while refinance applications take a bigger hit, according to the forecast.

"Once we hit the 7% range, you can see the purchase activity dropping off a little bit more significantly," said MBA Deputy Chief Economist Joel Kan, referring to the upward path of mortgage rates this year.

Kan says the group's survey data shows homebuyers are increasingly turning to adjustable-rate mortgages (ARMs), which offer a lower introductory rate, but are riskier for buyers because monthly payments on the loans could increase significantly in the future.

“The buyers who are still in the market are increasingly turning to ARM loans or paying points to lower their rates for the life of the loan," said Kan. "The ARM share of applications averaged almost 10% over the past month and MBA forecasts that it will remain over 9% through 2027."

Kan said that in the coming years, slower natural population growth and lower immigration may contribute to lower overall demand for housing, relieving pressure from a longstanding housing shortage.

He argued that national annual home-price growth in the 2% range in recent years indicates that the national housing shortage is not as severe as previously estimated. Realtor.com economists have pegged the national housing supply gap at more than 4 million units.

“We expect declining levels of new construction for both single-family and multifamily homes over the forecast period," said Kan. "With fewer housing starts and relatively flat home sales expected, our forecast is for national home price growth to decelerate in 2027 before gradually picking up again in 2028."

Meanwhile, Kan acknowledged a shortfall of affordable housing in the nation, and said he hoped recent interest in manufactured housing could help fill the gap. This summer, Congress passed the 21st Century Road to Housing Act, which contained provisions to bolster manufactured housing.

"We've been underbuilding in terms of entry level units—you know, starter homes—for quite some time, and do think that with Road to Housing, there is an opportunity for manufactured homes," he said. Kan added there was an opportunity for manufactured housing to "step in, to kind of replenish and add to some of the affordable housing stock that's out there."