The mortgage rate that homebuyers consider to be the tipping point for their decision to purchase a home.
Mortgage rates are expected to drop to 6.0% by the end of 2026, according to Fannie Mae's July 2025 Economic and Housing Outlook. This decrease, while modest, could significantly impact home affordability and sales.
A drop in mortgage rates to around 6.0% would improve home affordability somewhat, lowering monthly mortgage payments compared to the rates near 6.7% seen mid-2025. This can help make buying homes slightly less costly for borrowers. However, home price growth is also projected to slow down, with expected annual home price growth revised downward to about 2.8% in 2025 and 1.1% in 2026. This somewhat offsets the affordability gains from lower rates.
Total home sales are forecasted to rise modestly from an estimated 4.85 million units in 2025 to 5.35 million units in 2026, indicating a potential gradual recovery in sales volume as rates decline and affordability improves.
Jeff Ostrowski, a Bankrate housing market analyst, advises homebuyers to buy a home when it is affordable, with savings, manageable debt, and a plan to stay for several years. He cautions that mortgage rates being low during the "good old days" was due to something going horribly wrong in the economy.
A recent Bankrate survey found that about 40% of homeowners said mortgage rates would need to drop to 6% or below for them to feel comfortable buying this year. If rates were to drop to 6%, an additional 5.5 million households would be able to afford a home. However, more than half of the homeowners in the same survey said there is no mortgage rate at which they would be comfortable selling their home and buying another this year.
This "lock-in" effect, where many Americans who bought or refinanced at historically low rates during the pandemic are reluctant to buy or sell, is contributing to the slowdown in home sales. In most of the country, the housing market is no longer a super intense seller's market, giving buyers more time.
Experts note uncertainty remains due to economic and Federal Reserve policy risks. While Fed rate cuts are anticipated, they are not guaranteed, and mortgage rates could fluctuate accordingly.
In conclusion, a mortgage rate drop to 6.0% by 2026 is expected to modestly enhance affordability and support a moderate increase in home sales, but the overall market impact may be tempered by slower home price growth and ongoing economic uncertainties.
[1] Fannie Mae. (2025). July 2025 Economic and Housing Outlook. [2] Mortgage Bankers Association. (2025). Forecast: 30-Year Fixed Mortgage Rate Averages. [3] Freddie Mac. (2025). Primary Mortgage Market Survey. [4] Federal Reserve. (2025). Federal Open Market Committee Meeting Minutes.
The expected drop in mortgage rates to around 6.0% by 2026, as indicated in Fannie Mae's July 2025 Economic and Housing Outlook, could lead to better affordability in personal-finance terms for potential homebuyers. This decline, though incremental, might stimulate news about increased home sales, as evidenced by the forecasted rise in total home sales. However, the slowdown in home price growth might slightly counterbalance the affordability gains, making it a complex situation for financial analysis.
