Mortgage Rates Must Fall in 2026
With resale home transactions falling, mortgage rates steady at 6%, and inflation easing there isn’t a lot to fuel big home price increases. And that’s fortunate, given how difficult and expensive it is to buy a home, or find refinancing.
Sure there are a lot of buyers waiting and President Trump is looking at a number of ways to help buyers — including allowing them to use their 401k savings to buy a home.
The Housing Market Can’t Rejuvenate with High Interest Rates and Lofty Mortgage Rates
But both buyers and sellers have backed off with opposing goals, both sure they will win as time passes. One way to help them both win, is to lower mortgage rates. Yet mortgage rates are kept artificially high for a number of reasons — including political. And with governments dependent on real estate for taxes, bank stability and profitability, construction fees, and debut issuance (issuing bonds), a big drop in prices isn’t desirable. Lower interest rates and mortgage rates are great for Americans, but not for the wealthy and governments.
Builders too won’t build condos or homes with rates, taxes and fees they have to suffer through. Everything is stacked against them and the risk is too great. One solution will work — lower interest rates.
Why must they be lowered? You can find that answer below. Overall, lower mortgage rates help with the home affordability, inflation and housing supply issue. High mortgage rates bring everything to a crawl. With an economy overly dependent on the real estate market, high rates make everyone suffer, especially average Americans who need a roof over their head. Homelessness might actually be the number one reason, but the hopelessness that this housing suppression ideology the Democrats fostered is very damaging to the country’s spirit and economic health.
High bond yields are the end result of bankers, corporations, governments, and investors expecting interest rates to stay high. As long as J Powell and crew believe inflation and employment are an issue, he’ll keep the central lending rate high. Governments have massive debts without sufficient tax revenue. Governments suffer severe long term pain when rates stay high, yet governments ignore the mounting debt and the decay that arises from it.
They must borrow to keep themselves going, thus they have to pay the going rate to investors. Yields then are higher. If the FED rate is 2 to 3% too high, it adds a massive load to government deficits. Keeping this affliction going then makes the FED decision very suspicious. $38 Trillion is high enough.
When the FED Drops the Central Rate — Businesses and Buyers Are Happy
If the FED drops the central rate, bond yields will fall, and money will leave the government sector, fleeing to the private sector to fund business growth. That’s an ideal outcome — where businesses can get the capital they need at reasonable cost.
In many states, home prices are falling, which will lead to some financially-enabled buyers to actually buy a home this in 2026. While home prices are still higher than pre-pandemic levels, sellers believe they will still get their dream price, regardless of the economy and federal politics.
There’s still a shortage of homes, particularly at the affordable price range. As there is no active solution for the housing shortage (albeit with no immigration and deportation active), we can predict home prices won’t fall much this year.
In fact, if mortgage rates fall as the FED eases interest rates and as President Trump eyeballs ways to deflate the bond market, we could see some increased demand for homes. One theory is that a small decrease in mortgage rates would have all buyers contacting their favorite Realtor right away.
Mortgage Bankers Association doesn’t have any good new for us. They forecast Mortgage rates will stay stuck around 6.3% in 2026. And that The housing market is projected to normalize, with 30-year mortgage rates expected to stay within 6–6.5% over the next several years.
Latest Mortgage Rates
Bankrate Mortgage Rates (Jan 13, 2026)
At those lofty elevated rates, the average home buyer won’t be able to buy anytime soon. Too expensive to write a mortgage on those home prices with employment a big question mark. With an impending war with the FED, tariff insecurity, and a potential government default on its massive debts, buyers are wary.
President Trump’s Mission to Lower Interest Rates
President Trump wants to unfreeze mortgage rates from their over 6% height. He is commanding Fannie Mae and Freddie Mac to provide capital to the mortgage market, to buy billions of dollars in mortgage bonds.
“I am instructing my Representatives to BUY $200 BILLION DOLLARS IN MORTGAGE BONDS. This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable,” Trump posted on Truth Social. Yet, if the FED already holds $2 Trillion in mortgage debt, his effort might not matter.
Homebuyers are likely buoyed by the effort and intent of Trump to tackle this problem. Whenever some makes an effort and applies themselves to solve a problem, eventually they find a way. Trump isn’t theoretical. He’s boots on the ground moving forward slowly to find a practical way to get this done. He has opportunities to fend off Democrat’s efforts to nullify the tariffs and trip up his economic plan.
The question is whether they’ll work. And buyers might wait for clarity on that and all the other noise and turmoil before considering buying a home.
Limited Housing Stock Makes Home Price Moderation Unlikely
And even with low mortgage rates and a lower down payment, there isn’t much affordable stock available across the country from Florida to California to New York. Buyers can’t bid prices up much at these prices. As you can see home prices are elevated by a consistent systemic effort, and mortgage rates may not affect them that much. The underlying cause is a deliberate lack of home building, while keeping immigration high, and fostering massive government debt loads that must be refinanced continuously forever. It created a fire that can’t be extinguished.
A tariff overturn would open the doors to imports leaving the US economy vulnerable to huge losses. US AI technology firms would be in grave danger after investors have poured trillions of dollars into AI infrastructure.
If anything, that would lead to a significant housing market downturn. A crash of course likely won’t happen because there’s just not enough housing inventory to fuel it. A look at affordable housing sales shows massive shortages – demand for cheap homes is never ending given many immigrants aren’t fully housed and young adults can’t even leave home.
The Housing Shortage Prevents a Price Collapse
The housing supply shortage in the US is estimated to be between 2 million and 5 million homes. Some suggest with sales equaling listings, that balance has been achieved. But no, sales in the affordable range is quashed due to limited listings, and due to the bifurcation of the buyer market – lots of poor people and few wealthy buyers. Middle America has been hollowed out, so middle class buyers won’t be buying any tiny new homes being built.
Those homeowners including Gen Xers and Babyboomers won’t sell their home and lose their pandemic era mortgage rate. So they’re locked in until they must renegotiate, if they actually have to.
Currently, pending sales have dropped in January telling us buyers are withdrawing. That’s a response to political problems and some employment fears. The Supreme Court’s ruling on 60% of President Trumps tariffs is a massive worry with huge financial implications. It could conceivably collapse the country by a flood of imports and the repayment of taxes collected.
Another fear is at the FED where rumors are being pushed out on the media about J. Powell refusing to leave the FED or his position as Chairman. That would signal ongoing opposition to lower interest rates and allowing the US economy to recover.
What Happens When Mortgage Rates Fall?
Typically, when mortgage rates fall, home prices tend to rise, after a lag. The reasons why mortgage rates must fall are as follows:
- enables buyers to capture the financial available to buy a home
- lowers mortgage payments to a more reasonable level
- home sales rise creating business activity and tax revenue generation
- gets the housing market unstuck
- reignites new construction with cheaper financial for home builders
- allows many young Americans to build equity
- allows many Americans to live according to life phases and their needs (marriage, kids, job relocation)
You can see how suspicious it is to keep interest rates high when the FED said it would be data dependent. It’s obvious this is political and they have no intent to lowering the rates regardless of jobs, wages, or inflation.
Some experts believed home sales would catch fire at 5%, but they might need to go lower.
See more on the housing market factors, the 5 year outlook for the residential housing market, and the latest look at the housing.
