Want lower mortgage rates? One economic “X factor” could give them to us. It’s time for our 2026 mortgage rate predictions!
Is this the year we get back into the 5% mortgage rate range? It might be more likely than you think. But two things are currently holding mortgage rates in limbo, keeping the housing market “stuck” as buyers beg for a more affordable interest rate. These crucial factors could finally budge, and if/when they do, big changes to mortgage rates could follow.
For four years, Dave has been sharing his mortgage rate forecast leading up to the new year—and he’s been right almost every time. But we’re not just sharing Dave’s take. We’ll also give you mortgage rate forecasts from top economists at Fannie Mae, NAR, and more.
Waiting for lower mortgage rates? Stick around to see if Dave’s prediction is what you want to hear.
Dave:
Which way will mortgage rates go in 2026? This is the question that will determine the direction of the housing market and how to invest in real estate for the next year. Today I’m giving you my 2026 mortgage rate predictions. Then I’m going to share some other expert opinions on mortgage rates that I’m personally following, and then I will reveal the one big X factor that could totally change the mortgage market in 2026. Hey everyone, welcome to the BiggerPockets podcast. I’m Dave Meyer and I’m excited to have you here for the kickoff to what we call prediction season. Every year around this time, major forecasters, banks, random people on the internet start to make predictions about 2026, and the housing market is certainly no exception. Some of the opinions that you might hear are solid, others not so much. So we here at BiggerPockets want to make sure that you’re getting the best quality forecasts and information as you start planning your strategy and approach to 2026.
So I am going to share with you my own personal predictions and although past performance does not indicate future results have been pretty accurate at this the last couple of years, but on top of just my own opinion, I’ve gathered some reputable forecasts from across the industry to share with you as well. So that’s what we’re doing today, mortgage rates, and then next week I’m going to share my predictions for price, appreciation, rent growth and all that. That’s the plan. Let’s do it. First up, why are we even talking about mortgage rates? Why are we dedicating an entire episode of the show to forecasting mortgage rates? I know everyone is probably tired of talking about it, but the reason I am doing this and spending time on this is that I think it’s the single biggest variable and what happens to the housing market next year.
Yeah, there are tons of other important things we got to take into account, the labor market and tariffs and inflation and immigration and what institutional investors are doing. All of that, the list is long, but my theory about the housing market, which I’ve been talking about for God three years now and has so far proven to be right, is that affordability is the key to everything and mortgage rates are the most important variable in affordability. The housing market is slow right now. We’re going to have only about 4 million transactions in 2025, which might sound like a lot, but it’s actually 30% below the average, and this is happening because we’ve hit a wall, we’ve hit an affordability wall, and although affordability can improve in other ways than mortgage rates, we can see wages go up and prices go down, those are less likely to make a big impact in 2026.
So the most important variable here, and frankly the most volatile variable is mortgage rate. So this is why we’re talking about it Now, fortunately, I know not everyone feels this way, but we should call out for a moment that 2025 was a good year for mortgage rates. Remember back in January, mortgage rates were around 7.2% and they’ve been falling Now as of this recording in November of 2025, they’ve been in the 6.2 to 6.4 range the last couple of weeks leading up to this recording, which is pretty dead on for my prediction for 2025 rates. I think I actually nailed it this year and one year ago said this is about where we would be. That might not seem like some amazing foresight now, but I want you to remember that most forecasts, most influencers one year ago were saying this was the year that rates would finally come down and we would see them in the fives and we were going to see some huge uptick in housing market activity because the Fed was going to cut rates.
But personally, I just didn’t buy it, just like I didn’t buy that idea in 2023 or in 2024, as I’ve consistently said, that rates wouldn’t come down that much despite that being an unpopular opinion. And I’ve said this because I am not focused on the Fed, I am focused on two other things when I look at mortgage rates. Number one is the yield on 10 year US treasuries, and number two is something called the mortgage spread. And I want to talk for just a minute or two about these things work. I promise I will keep the econ talk brief, but this is important. This will help you understand not just predictions that I’m going to make and whether or not you believe me, but this big X factor that I’m going to share that could really change everything. So let’s learn how mortgage rates work.
Mortgages are a long-term loan lending to someone for potentially 30 years, a 30 year fixed rate. Mortgage is a long time, and banks and big institutional investors who buy mortgage-backed securities and are basically the people providing money for mortgages, they want to make sure that they’re getting paid an appropriate amount for that long-term commitment and to help set that price and help them figure out what they should be charging. These investors basically look for benchmarks in other parts of the economy. Who else could they lend their money to? What rate could they get instead of a mortgage holder? Now, the biggest borrower, the biggest person that they could lend their money to is of course, I’m sure you could guess this, the federal government of the United States, the US borrows a ton of money in the form of US treasury bills also called bonds, and since the US has never defaulted on its debt, it has always paid the interest on those treasury bills.
Lending to the US government is generally seen as the safest investment in the world. So when investors are deciding who to lend to and they’re looking for those benchmarks, they look first to the US government and see if that’s a good option for them. And this is why mortgage rates are tied to the 10 year US Treasury because despite most mortgages being amortized over 30 years, the average duration of an actual mortgage before someone sells their home or refinances is about 10 years. And so the 10 year yield is the closest benchmark for a mortgage. These investors could choose to lend to a mortgage holder for 10 years or they could take out a 10 year US treasury. That’s why these things are so closely correlated, but there is more to it. It is not just the yield. As I said, there is a second thing that we need to consider, which is called the spread because banks are not going to lend to you.
I’m sorry to say, they’re not going to lend to you at the same rate they’re going to lend to the US government. That’s just not going to happen full no way. The average US homeowner is just riskier than the United States government. The chance of the average American homeowner defaulting on their mortgage is certainly higher than the US government defaulting on its debt. And so investors build in what is called a risk premium, also known as a spread between the 10 year treasury and the mortgage rates. This is basically the additional money that these investors want to get paid for the additional risk they’re taking on by lending to a homeowner instead of the US government. You see this across the economy too. It’s not just the difference between yields and mortgage rates. You see that auto loan rates are typically higher than mortgage rates because the chances of default on an auto loan are higher.
And so the people who provide the money for those loans want a higher interest rate to compensate for that risk. The average spread between yields and mortgage rates over the last several decades is about 2%. So we’re going to use that as an example here. So if you have the 10 year US treasury, that’s about 4%. The spread is 2%, that is a 6% mortgage rate, and that’s how mortgage rates pretty much work. So I know there’s a lot to that, but it’s important. And again, my purpose here is not just to say a number, tell you to trust me. I want you to really understand and learn how these things move as it really does matter. And as a real estate investor, you’re putting a lot of your own time and effort and money into an asset class that is very mortgage rate sensitive.
So I think it’s worth spending a little bit of time right now to learn how mortgage rates actually work because it really does impact your portfolio. And now that we’ve learned this, you could probably see why rates have come down this year. Spreads are down a little bit, just not too much. They actually came down a lot last year, but they started the year around 2.3 ish percent. Now they’re around 2.2%, so that’s a little bit of improvement. The big improvement that we’ve seen in mortgage rates has come from bond yields falling. They dropped from about 4.5% to about 4.1% as of today. And so you take 4.1% as of today, a 2.2% spread. You get a 6.3% mortgage, which is precisely what mortgage rates are today. Now, you might be wondering what the Fed, right? Everyone makes so much noise about the fed and rate cuts.
Does what they do actually matter? Yes, it does matter, but it matters in a less direct way than yields and spreads. They basically only matter in terms of how much they influence the above variables, right? Because federal funds rate cuts, what the Fed cuts that can bring down bond yields, that can bring down spreads, but they’re just less direct relationships. The federal fund rate is just one of many complicated factors like inflation, the labor market supply and demand in the mortgage backed securities market, prepayment risk, all this other stuff like all those things go into what bond yields are and what the spread is going to be. And the federal fund rates matters, but it matters in the ways that it’s influencing these other things down the line. So now you understand how mortgage rates work. I know it sounds complicated, but that’s it. Just look at bond yields, look at spreads.
Now that we know this, we can actually start making forecasts because we can break this down. Where are bond yields going next year? Where is the spread going next year? And that can tell us where mortgage rates are going. We’re going to get into that right after this quick break. We’ll be right back. Running your real estate business doesn’t have to feel like juggling five different tools. With simply, you can pull motivated seller lists. You can skip trace them instantly for free and reach out with calls or texts all from one streamlined platform. And the real magic AI agents that answer inbound calls, they follow up with prospects and even grade your conversations so you know where you stand. That means less time on busy work and more time closing deals. Start your free trial and lock in 50% off your first month at ssim.com/biggerpockets. That’s R-E-S-I-M p.com/biggerpockets.
Welcome back to the BiggerPockets podcast. We’re doing our 2026 mortgage rate forecast. Before the break, we talked about how the two variables you need to track to make a forecast about mortgage rates are yields on the 10 year US Treasury and the spread between those yields and mortgage rates. So we got the variables, but now we need to go one level deeper, right? We need to understand what moves bond yields, and I know this sounds complicated, but I think I can make this make sense in a way that can really help your investing decisions. Bond yields are influenced by tons of different things, but I think we could sort of focus on two major variables, things that all of you understand. Inflation and recession, both of these things are going to move bond yields a lot. When there is a lot of risk of inflation, the bond yields tend to go up, and that’s because bond investors really, really hate inflation.
Just think about it this way, right? If you were a bond investor and you were lending money to the US government for 10 years at a 4% rate, you’re doing that because bonds are a good capital preservation technique. It’s good for making sure you hedge against inflation, you make a little bit of a return. That’s what bonds are for. But imagine now if inflation went to 5% for all 10 of those years and you were only locked in at a 4% interest rate, that means you’re lending the government money for negative 1% real yield because yeah, they’re paying you 4%, but you’re losing 5% to inflation. And so you’re kind of getting screwed in that situation and that’s why bond investors really don’t like inflation. And so anytime there is risk of inflation, they will not buy bonds and they will demand a higher interest rate from the US government to compensate for that.
So that’s a major thing that moves bond yields. The other major thing that moves bond yields is recession risk because when there is a lot of risk in the broader economy, when people are not feeling as good about the stock market or crypto or maybe even real estate, they want to move their money to safer investments and bonds are seen as, like I said, the safest investment in the world. And when a lot of people have demand for bonds, when everyone’s clamoring to get their money into this safe asset, the US government says, sure, we’ll lend you money, but we’re not going to pay you as much. Instead of paying 4%, we’re going to pay you 3.5%, we’re going to pay you 3%, and that is why the risk of a recession can actually move bond yields down. Now in a normal economy, you usually have the risk of one of these things happening but not the other.
Either the economy’s going really well and maybe overheating and that’s when you’re risking inflation or things aren’t going well and there’s risk of recession and bond yields start to go down. But we are in an unusual time economically, and the risk of both of these things is relatively high right now. I am recording this in November, so we actually don’t have government data for the last two months because of the government shutdown, which is frustrating and definitely makes forecasting this next year a little bit harder. But what we know is that as of September, inflation had gone up for the fourth straight month. It was about 3.1%. Not crazy like we’re in 20 21, 20 22, but it had been falling for several years. Now it’s moving in the other direction, so the risk of inflation is still there. At the same time, we have some jobs data, we don’t have government jobs data, but a DPA payroll company said that they thought that the US economy shed 50,000 jobs in October.
We’re waiting to learn more, but clearly the risk of rising in unemployment is there. And the fact that we have these two sort of counteracting risks, they kind of offset each other because bond yields can’t go up that much because although some people are worried about inflation, others are worried about recession, they can’t go down that much because although some people are worried about recession, other people are worried about inflation, and that sort of means we are stuck right now. That’s sort of why mortgage rates haven’t moved that much. I think that’s why it’s unlikely that bond yields and mortgage rates are going to move significantly at least for the next few months. In order for mortgage rates to move a lot, something definitive in the economy has to happen one way or the other. We need to see inflation really start to go up and really spark fear for investors, or we need to see it go back down below the fed’s target or we need to see the labor market break.
We need one thing that’s going to tell these powerful big bond investors where to put their money because right now they’re kind of just hedging and that’s leaving us in limbo. That might last for a while. Now, despite the fact that we’re flying blind with no data for the last couple of months, I do want to sort of make a prediction for what I think will happen, what the most likely course is. If I had to predict right now, I think mortgage rates will move down a little bit in 2026. I know there are tariffs, but all the evidence I see is that the slow labor market, slower consumer confidence, and I think that will come to a head in 2026, will start to see more people take a risk off approach. That should put more dollars into bonds and that will bring down mortgage rates.
But I don’t think inflation’s cool enough entirely. So yields will probably stay higher than they might normally in this kind of labor market conditions and the impact on mortgage rates will be muted, and this is why my base case for mortgage rates in 2026 is for them to stay in a range of 5.6 and 6.6%, and I do expect it to be volatile. We’ve seen mortgage rates move up and down constantly over this year, and I think that’s going to continue because we might get a really bad inflation print followed by bad labor market or a great inflation print, and then the next one’s really bad and mortgage rates are very sensitive. They’re going to move to that. So that’s why I think over the course of the year, the range I’m predicting is 5.6 to 6.6%. If you asked me to pick a average for the whole year next year, I’d just say it’s close to 6%, 5.8 to 6.2%, somewhere in there is probably going to be the average.
So that’s my prediction. And I want to say this is not some crazy prediction. I felt a little bit last year, like I was out there on my own saying that rates were going to stay high. That was not the consensus at all. But this year I think I am more in line with the consensus. If you look at Fannie Mae, they are predicting that rates will come down to about 5.9% in 2026. The Mortgage Bankers Association, they’re going the other direction. They actually think it’s going back up to 6.4% and NAR, national Association realtor called it near 6%. So all that’s in my range basically. Most forecasters agree things aren’t going to change that much. Now I’m making my forecaster, but as an analyst, when you learn how to do this stuff, you’re also taught to give sort of a confidence, a level of confidence that you feel about your prediction.
And this year I don’t feel super confident. I would say I am mildly confident. One, because I just don’t have data, right? So much is changing right now and to go the last two months without any new information is pretty big. It really makes forecasting hard. But the second reason I’m feeling less confident is because there’s this big X factor that could totally change my forecast. It could totally change the mortgage market. It could totally change the entire housing market in 2026 if it comes true. And I’m going to share with you this X factor right after this quick break. I’ll be right back. The Cashflow Roadshow is back. BiggerPockets is coming to Texas, January 13th to 17th, 2026. Me, Henry Washington and Garrett Brown will be hosting Real estate investor meetups in Houston and Austin and Dallas along with a couple other special guests. And we’re also going to have a live small group workshop to answer your exact investing questions and help you plan your 2026 roadmap. Me, Henry and Garrett are going to be there giving you input directly on your strategy for 2026. It’s going to be great. Get all the details and reserve your tickets now at biggerpockets.com/texas. Hope to see you there.
Welcome back to the BiggerPockets podcast. I’m here giving my mortgage rate predictions, and I told you my base case, the thing that I think is most probable to happen is that mortgage rates stay in a range between 5.6 and 6.6% next year, somewhere around 6% might be the average for next year, but there is one major variable that I haven’t talked about yet that could change my entire forecast, and I’m not sure if it will happen, but I think the probability that it happens is increasing, and this is huge for real estate investors. If it happens, the big X factor is the prospect of something called quantitative easing. Yes, that is right. The Fed could feasibly bring back. Its one tool that could really bring down mortgage rates in 2026 because remember, federal funds rate doesn’t bring down mortgage rates directly. It does it in an indirect way, but the Fed does have this other tool in its tool belt and it’s called quantitative easing.
Now, I know quantitative easing, it’s a fancy term. It sounds complicated, and it can be, but here’s the idea behind it. During times of financial stress, the Fed can add liquidity to financial markets, which can help stop or reverse recessions. It can stimulate the economy, and they do this through what they call quantitative easing. What normal people would call this is money printing, right? This is just a fancy term for creating money and injecting it into the financial system. Now, it’s not actually going to the US mint or the printing press and actually creating dollar bills, which is why it’s complicated. What they actually do is they go out and they buy us treasuries, those bonds that we were talking about before, or they even buy mortgage backed securities. So they basically act like the investors that I was talking about who invest in bonds or who invest in mortgage backed securities.
Instead of it just being pension funds or hedge funds or sovereign wealth funds, it is also actually the Federal Reserve of the United States acting like one of those investors buying US treasuries and buying mortgage backed securities. And what money do they use to buy this new money? They literally just create it out of thin air. They just press a couple buttons on a computer, and then whoever they’re buying, the mortgage backed securities or treasury funds seize that money in their bank account. And that money never existed before, and this was happening after the great financial crisis and COVID and different people have different opinions about whether it makes sense, whether it was effective, but in recent years, it stopped. Now, should this stuff happen, I’ll get to that in a minute, but what you need to know right now is that unlike the federal funds rate, if they started quantitative easing, again, it would impact mortgage rates.
If the Fed goes out and buys mortgage-backed securities, that raises demand for mortgage-backed securities demand and yields work in opposite directions. So when there is more demand, yields fall and mortgage rates are likely to fall by how much we don’t know. But if they do it aggressively, we could definitely see rates lower than my range. Who knows? We could even see rates into the 4% if they were to do this, and that would be a huge shift. Now, right now, I am just speculating and personally, I believe that quantitative easing should only be used in true emergencies because even though it can bring down mortgage rates, it comes with serious risk of inflation like we saw in 21 and 22 and asset bubbles, and I don’t really think we’re in a financial emergency as of right now in the United States. That might change in 2026, and maybe we will need it, but as of right now, I don’t think quantitative easing is necessary, but the labor market is weakening, and we could see unemployment go up maybe to emergency levels.
If all these predictions about what AI is going to do to the labor market come true, that could cause quantitative easing. The other thing is that President Trump has repeatedly said that he wants lower mortgage rates. He’s even floated the 50 year mortgage in order to bring down housing costs, and he has repeatedly made this a priority, and so he could put pressure on the Fed to start up quantitative easing and buy mortgage backed securities. Now, this is getting into the whole drama that goes on in Washington, but I don’t personally think Jerome Powell, the current fed chair, is going to start quantitative easing. He got burned on that pretty hard before with the crazy inflation in 21 and 22. But in May, 2026, Trump can and probably will replace Jerome Powell, and the new Fed chair might have a different opinion on how to approach this and might start quantitative easing.
There have been a lot of forecasts about this. I was looking into this and some major banks are predicting quantitative easing. I saw some poly market things and about Wall Street thinks there’s about a 50 50 chance that this happens, which is pretty crazy given that we’re not in a recession right now. So this is a really big thing to watch because I’m making my base case for mortgage rate predictions, assuming this is not going to happen. But as the labor market weakens, president Trump continues to prioritize housing affordability. The fact that the Fed just came out and said they’re stopping quantitative tightening, I think the chance that we see this quantitative easing goes up. So that is this really big X factor in my opinion, and something that I’m going to obsessively watch for the next year to see if it’s going to happen, because this, even though I know it sounds esoteric and nuanced, it would have a bigger impact on the housing market than any other thing in 2026. It could fundamentally change the direction of the market in meaningful ways, which we’re going to talk about next week when I give you my predictions for the housing market. Thank you all so much for listening to this episode of BiggerPockets Podcast. That’s my predictions, but I’d love to know yours. So let me know in the comments your predictions for mortgage rates in 2026. Thanks again for being here. We’ll see you next time.
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