A growing federal deficit and expected higher inflation would keep mortgage rates from falling below the 6 percent mark for the next three years, Mortgage Bankers Association (MBA) chief economist Mike Fratantoni warned over the weekend.
Fratantoni made the grim forecast at this year’s MBA annual conference in Las Vegas on Sunday, saying he expected rates to remain between 6.5 percent and 6 percent through the end of 2028.
“As we move over the next couple of years, we think it’s more likely that long [term] rates are going to go up rather than down, given the fiscal pressures on the economy,” he said.
Newsweek contacted MBA for comment by email on Wednesday.
What Is Standing Against Further Declines?
Americans have now faced three straight years of mortgage rates hovering between 6 percent and 7 percent—more than double the lows reported during the pandemic, when historically low borrowing costs sparked a homebuying frenzy.
Mortgage rates shot up after the Federal Reserve launched its aggressive rate-hiking campaign to combat the rise of inflation in 2022. Despite some rate cuts last year, mortgage rates have remained between 6 and 7 percent until now, continuing to pose an extra challenge to homebuyers already struggling with skyrocketing home prices and other rising housing costs, including higher home insurance premiums and property taxes.
After the Federal Reserve cut interest rates for the first time since December 2024 last month, experts projected that rates would continue falling—even if ever so slightly. In September, mortgage giant Fannie Mae forecast that mortgage rates would end 2025 and 2026 at 6.4 percent and 5.9 percent, respectively.
Now, Fratantoni crushed that hope, saying that uncertainty over the U.S. economy was likely to keep mortgage rates from falling further in the coming months and years—no matter what the Fed does.
What Is the Fed Likely to Do Next—and How Would It Influence Mortgage Rates?
As of October 16, the average 30-year fixed-rate mortgage—the most popular home loan among Americans—was 6.27 percent, down 0.17 percentage points from a year earlier and 1.52 percent from its 2023 peak of 7.79 percent, according to Freddie Mac data.
While the Federal Reserve does not directly affect mortgage rates, its decisions influence what banks charge each other to borrow money—which in turn has an effect on mortgage rates and the housing market.
In a video interview last month, Fratantoni said the Federal Reserve was likely to announce three additional cuts in the coming months—whether that included two this year and one next year, or one this year and two next year.
“They are really going to be constrained in how far they can cut, based upon this still sort of troubling inflationary pressure. But they are balancing that against a job market which is definitely weakening,” he said. MBA’s expectations are that rates will remain “in this neighborhood,” Fratantoni added.
Jiayi Xu, a senior economist at Realtor.com, said in a statement shared with Newsweek that the ongoing government shutdown, which began on October 1, is a matter of concern for the Fed and could affect its future decisions.
“On Tuesday [October 14], Fed Chair Jerome Powell expressed concern about downside risks in the labor market but also warned that the slow pass-through of tariffs could begin to resemble persistent inflation,” she said.
“Still, Powell noted that as risks become more balanced, monetary policy should gradually move toward a more neutral stance—hinting at the possibility of further rate cuts,” she continued. “While CPI data is expected to be released before the October FOMC meeting even if the shutdown continues, the prolonged disruption could further complicate the Fed’s decision-making by delaying other key economic reports.”
On Sunday, Fratantoni said that whatever the Fed decides, a growing federal deficit—the difference between the government’s expenses and its revenues—and elevated inflation expectations would keep the key 10-year Treasury yield above 4 percent and mortgage rates between 6 percent and 6.5 percent for the next several years.
For the fiscal year that ended in September, the federal deficit totaled $1.78 trillion, down $41 billion from $1.82 trillion for the same period last year.
What Does This Mean for U.S. Homebuyers?
In a more positive outlook for U.S. homebuyers, Fratantoni believes there will be brief periods where mortgage rates will ease further, helping to unfreeze the U.S. housing market and boost sales. What would help increase sales, which have slowed to a crawl during the summer due to ongoing affordability issues, would mainly be higher levels of inventory, he said.
“While mortgage rates are not expected to decline further, housing supply has increased in recent months, which will ease home-price growth and provide more housing options for prospective buyers,” Fratantoni said. “The increase in inventories will put downward pressure on home prices across the country.”
The economist said he expected home prices to fall nationally for several quarters over the next few years.
Other experts are less positive. Lower mortgage rates over the past few weeks have already seen an uptick in contract and listing activity in September, said mortgage veteran Lisa Sturtevant, Bright MLS’s chief economist. But this improvement is not necessarily good news for buyers.
“Over the past few weeks, rates have been at their lowest levels of the year,” she said. “Perhaps perversely, the recent drop in rates could make it harder for some buyers, ratcheting up competition particularly in areas where inventory is still low. Price growth has slowed. However, if there is an increase in demand in the market, there is a possibility we could see price growth begin to accelerate again.”
“If lower rates bring more buyers into the market, but inventory continues to plateau and does not increase to meet that increased demand, then buyers will face more competition,” Sturtevant told Newsweek. “This outcome is most likely in parts of the U.S. where inventory is still constrained, including markets in the northeast and Midwest.”
Xu said that “substantial wage gains and improved financial stability” would be essential to boost purchase sentiment after years of rising housing costs outpacing income growth.
She added: “However, broader uncertainty from the ongoing government shutdown may further weigh on sentiment—especially in markets with a higher share of federal workers and contractors, who are facing financial strain and concerns over potential layoffs.”