Rates Set to Ease: A Brighter Outlook for Homebuyers in 2025-2026

Home borrowing costs have lingered just below 7% for the 30-year fixed rate for over a year, excluding some buyers and slowing home sales, as higher rates increase monthly payments.

Relief may be on the horizon for borrowers. Goldman Sachs projects a modest decline in U.S. Treasury yields across short-, medium-, and long-term maturities, suggesting stable borrowing costs amid slowing economic growth and expected Federal Reserve rate cuts.

Major forecasters predict stable or declining 30-year fixed-rate mortgage rates through 2025-2026: Fannie Mae expects a drop to 6.5% by the end of 2025 and 6.1% by 2026; the Mortgage Bankers Association forecasts 6.8% in Q3 2025, falling to 6.7% by year-end and 6.6% in Q1 2026; the National Association of Home Builders anticipates 6.75% in 2025, 6.27% in 2026, and 5.98% by year-end 2026; Wells Fargo projects a steady 6.5% through 2025-2026, noting that economic growth and inflation risks may limit further declines.

Furthermore, declining inflation is expected to reduce borrowing costs. When inflation rises more slowly, the need for high interest rates diminishes, making loans for homes, cars, and credit cards more affordable, which supports spending and borrowing for individuals and businesses.

In the housing market, new U.S. home listings fell 3.2% in June, marking a 3.4% year-over-year decline and the lowest level since October 2023. Despite this, unsold home inventory, including homes under contract, surged 20% from June 2024, indicating rising supply. U.S. home prices dipped 0.1% in June, with most major metropolitan areas experiencing similar softening.

Bottom Line: Rising home inventory, steady mortgage bond prices, and a projected decline in Treasury yields signal a brighter outlook for homebuyers, potentially easing affordability challenges and promoting a more affordable housing market in the near future.

Source: Mortgage Market Guide