...
By Giulia Carbonaro
Senior Reporter
0
Share
Newsweek is a Trust Project member
See more of our trusted coverage when you search.Prefer Newsweek on Googleto see more of our trusted coverage when you search.
This year, mortgage rates failed to decline by as much as many—including President Donald Trump—would have wished for to alleviate the ongoing affordability challenges in the U.S. housing market.
As of the week ending on December 11, the average 30-year fixed-rate mortgage was 6.22 percent, according to Freddie Mac data, or near 2025 lows. While much lower than the peak reached in October 23, when the average 30-year fixed-rate mortgage was a record 7.79 percent, borrowing costs are not lower now than they were during the pandemic.
After years of lows of 2-3 percent, mortgage rates suddenly shot up in 2022 in response to the Federal Reserve’s aggressive rate-hiking campaign to slow down the rise of inflation. Rates have fallen slightly this year as the Fed started cutting rates again in the second half of the year, but remain above the 6 percent mark.
Read More on News
What Will the Federal Reserve Do Next Year?
The Fed does not set mortgage rates, but its decisions impact banks’ short-term borrowing costs, indirectly influencing mortgage rates as well. The central bank has cut rates three times this year in October, November, and December.
But what it will decide to do next year—whether it will continue cutting rates or not—will depend on how the U.S. economy will perform.
“As always, mortgage rates will move with 10-year Treasury yields, and that figure is based on investor sentiment around inflation and unemployment,” Bankrate Housing Market Analyst Jeff Ostrowski told Newsweek.
“By all accounts, 2026 will deliver more of the same—unemployment a bit above 4 percent, inflation in the neighborhood of 3 percent.”
...
According to the latest jobs report released by the Bureau of Labor Statistics, unemployment ticked up to 4.6 percent in November, the highest level in four years.
After the current Fed Chair Jerome Powell’s exit, LendingTree’s chief consumer finance analyst, Matt Schulz, said that he expects the new chief of the Federal Reserve to push “hard for extra rate cuts” next year, but these potential cuts will not “move the needle much,” he said. “Expect no more than two rate cuts in 2026, regardless of who’s running the show.”
Will Mortgage Rates Go Down—Or Rise?
The most common answer among experts is neither. Not really.
“Mortgage rates look like they’ll be in a holding pattern in 2026,” Ostrowski said.
“Most housing economists expect rates to stay just above 6 percent over the next year. There’s just not much on the horizon that would move rates—the job market is cooling but not crashing, and inflation remains stubbornly above 2 percent,” he added.
Bright MLS Chief Economist Lisa Sturtevant told Newsweek that her forecast is for mortgage rates to fall slightly in 2026, ending the year at an average rate of 6.15 percent on a 30-year fixed rate mortgage.
“However, rates are going to bump around,” she said, adding that this adds to the difficult situation faced by prospective homebuyers.
“Many sidelined buyers are eager to get into the market but face limited inventory and rising rates as we head into the new year,” Sturtevant said. “Rates likely will be lower in the spring, and there will be more homes for sale, but buyers could face more competition. And the economy remains a wildcard,” she added.
“If the labor market weakens further, some people may decide they cannot buy at all in 2026.”
In his prediction for next year, Schulz expects mortgage rates to dip below 6 percent in 2026, though the drop will not last long or meaningfully boost affordability in the housing market.
Daryl Fairweather, Redfin chief economist, told Newsweek that the company expects “modest improvement” in terms of borrowing costs next year.
“The average 30-year fixed mortgage rate should land around 6.3 percent in 2026, down from about 6.6 percent in 2025,” Fairweather said. “Rates may dip below 6 percent briefly, but not enough to restore pandemic-era affordability. However, we do think these relatively lower rates will encourage more buyers to enter the market."
Realtor.com expects mortgage rates to average 6.3 percent next year, easing affordability challenges enough to unlock some demand in the housing market, but not much.
Fannie Mae predicts that mortgage rates will hit 5.9 percent by the end of next year.
The ‘Wild Card’: A Recession
The “wild card” for mortgage rates would be a recession, Ostrowski said. “If the economy were to slow markedly or unemployment were to spike, Treasury yields and mortgage rates would likely fall,” he added.
Chances of the U.S. sliding into a recession next year are low. In its 2026 outlook, J.P. Morgan forecast a 35 percent probability of a U.S. and global recession next year, much lower than their expectation for this year. However, growth is expected to be slow, with a recent Deloitte analysis predicting that the U.S. economy will grow by just 1.4 percent in 2026.
View 0 Comments
Submit Correction
View Editorial & AI Guidelines