Here’s When Mortgage Rates Could Finally Fall Below 6%

Mortgage giant Fannie Mae has issued new projections forecasting that mortgage rates will finally fall below 6% by the end of 2026, a level that has not been reached in three years.

Fannie Mae's latest monthly economic and housing outlook for September predicts mortgage rates will average 6.4% at the end of this year, and 5.9% at the end of 2026.

Those are downward revisions from a month ago, when Fannie saw year-end mortgage rates at 6.5% in 2025 and 6% next year.

If mortgage rates do punch below the 6% threshold in late 2026, it would be the first time they have reached that level since 2022. Since then, elevated rates have combined with record-high home prices to price many buyers out of the market, weighing heavily on the number of home sales.

Mortgage rates for 30-year fixed loans averaged 6.26% as of last week, an 11-month low, according to Freddie Mac.

Rates have been falling in recent weeks ahead of the Federal Reserve's first interest rate cut since 2024, but movement in bond markets suggests they may have bottomed out for the time being.

Indeed, Freddie Mac's forecast indicates that rates could rise some through the end of the year, climbing back to around 6.4% by December. That matches the Realtor.com® economic research team's midyear forecast update, which called for year-end rates around 6.4%.

Mortgage rates largely follow movements in the 10-year Treasury yield, which reflects investor expectations for growth and inflation. Upcoming reports on labor and inflation data will have the biggest impact on rates in the coming weeks, ahead of the next Fed rate meeting in October.

"Inflation data and inflation expectations remain key, as any sign of stickiness could keep the Fed cautious on cutting rates," says Realtor.com senior economic research analyst Hannah Jones. "The Fed’s communications and pace of policy changes will also set the tone, with markets responding quickly to any signal of shifting policy path."

Currently, more than 80% of mortgages have a rate below 6%, and about 10% have a rate in the 5% to 6% range. The average rate for outstanding mortgages was 4.3% in the first quarter, according to the Federal Housing Finance Agency.

This means that rates dropping below 6% are unlikely to "unlock" a large portion of the market by encouraging more sellers to give up their existing low mortgage rate, says Jones.

"However, the 6% level may be more of a psychological barrier for some homeowners, shaping sentiment and affordability perceptions," says Jones. "If households see rates below 6% as 'normal' compared to the 7%-plus highs of recent years, a dip below that barrier could motivate demand."

For homebuyers, any breach below 6% could open up more buying opportunities, though affordability still depends on home prices and income, not rates alone.

For the housing market to return to the average affordability levels found from 2016 to 2019, it would take one of three things, or a combination of them, according to Fannie Mae.

Either the median price of a single-family home would need to plunge more than 39% to $257,000; the median household income would have to rise more than 60% to $134,500; or mortgage rates would need to fall to 2.35%.

Fannie revises sales forecast down

As affordability issues persist, Fannie Mae's latest forecast revises projections for total home sales in 2025 down to 4.72 million, compared to 4.74 million previously. The new projection would be slightly below the 2024 total.

Fannie's home sales projection for 2026 is now 5.16 million, down from 5.23 million previously.

In its midyear forecast, the Realtor.com economic research team projected that sales of existing homes (excluding new construction) would total 4 million this year, which would mark the lowest annual transaction pace since 1995.

New-home sales have remained sluggish this year, although new data on Wednesday showed an unexpected surge in sales of new single-family homes in August.

Signed contracts for new single-family homes were at a seasonally adjusted annual rate of 800,000 last month, up 21% from July and 15% higher than a year ago, the U.S. Census Bureau and Department of Housing and Urban Development reported on Thursday.

The August figure was far above what economists had expected and the highest since January 2022, potentially signaling a resurgence for homebuilders, who have struggled in the face of weak demand and elevated interest rates.

New data on sales of existing homes in August is expected from the National Association of Realtors® on Thursday.