Mike Fratantoni, chief economist for the Mortgage Bankers Association, breaks down the outlook for mortgage rates in 2027 and what it means for homebuyers.
Americans looking to buy a home face a tough affordability market due to high mortgage rates that are expected to persist into next year.
Interest rates on a 30-year fixed mortgage have increased by more than a percentage point since the start of the year, with Freddie Mac data showing a rise from 6.16% on January 8 to 7.24% on October 29.
The latest data shows a slight decline in recent weeks after rates hit a recent high of 7.4% in early October, which was the highest rate for 30-year mortgages since fall 2023.
Mike Fratantoni, chief economist for the Mortgage Bankers Association, told FOX Business that rising mortgage rates have “slowed activity significantly” compared to last year.
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The interest rate on a 30-year fixed mortgage is near its highest level in three years. (iStock/Getty Images Plus)
Fratantoni noted that the volume of home purchase applications is down about 15% compared to the same period last year, while refinancing applications are down further because “at this rate level, there’s just not much incentive for people to refinance their existing loans.”
This recent trend has created a dynamic in which current homeowners with lower mortgage interest rates are reluctant to sell their homes and move, given that a new mortgage would carry a higher interest rate.
“If you go back to where we were during the pandemic, we had record mortgage rates — people were getting 30-year fixed mortgage rates below 3%,” Fratantoni said. Surging inflation caused mortgage rates to more than double in 2022, creating a lock-in dynamic that reduced mobility as rates rose in recent years.
“Now with the new rise in mortgage rates, it will only reinforce that effect,” he said, adding that he expects the pace of home sales and construction to slow over the next year compared to what the market would be like with lower rates, as potential buyers grapple with affordability issues.
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Mortgage rates are expected to remain above 7% throughout 2027, although Fratantoni noted that rates are sensitive to developments domestically and internationally. (Brett Coomer/Houston Chronicle via Getty Images)
Fratantoni said homeownership affordability is determined by a “three-legged stool” that includes mortgage rates, housing prices and household incomes.
Even though mortgage rates have been high, home prices remain high relative to incomes but have moderated in some parts of the country, while wage growth is outpacing rents and home prices in much of the United States.
“The situation is improving a little, but this surge in mortgage rates is definitely a barrier at the moment and affordability conditions remain difficult, especially for many first-time home buyers,” he noted.
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Homeownership affordability is linked to mortgage rates, housing prices and relative wage growth, Fratantoni said. (Kevin Carter/Getty Images)
The Mortgage Bankers Association’s outlook for mortgage rates reflects some relief from current levels, although they are expected to remain above 7% in 2027, Fratantoni said.
“We think the rise we’ve seen is probably a little bit exaggerated, so we think rates will come down a little bit but still stay above what we would have predicted just a few months ago,” he said. “Our current forecast calls for the 30-year fixed mortgage rate to remain above 7% through 2027.”
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“It’s really going to be very sensitive to geopolitical developments – what’s happening in the Middle East, impacts on oil prices, impacts on inflation; and developments regarding the likely trajectory of the Fed and also this continued pressure of very large federal deficits and growing federal debt – which puts upward pressure, particularly on long-term rates,” Fratantoni said.
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