Bad news for first-time homebuyers: Experts update mortgage rate forecasts through 2026

The average interest rate for a 30-year mortgage has been approximately 1.4 percent higher than the federal funds rate (FFR), the interest rate established by the Federal Reserve, which other lenders use to calculate the interest rates they add to loans. As the lender of last resort, the Fed adjusts the FFR based on changing economic conditions. This practice, a component of monetary policy, influences the economy in ways Federal Reserve officials intend to promote financial stability. As wages rose rapidly in 2021, driven by workers returning to the labor force after pandemic-related layoffs, inflation began to increase. Furthermore, disruptions in the global energy market caused by Russia’s invasion of Ukraine continued to drive prices upward. As transportation costs rose, companies increased their prices, sometimes exceeding their cost increases, as evidenced by the record profits reported during this period. Price gouging is often identified when profits and prices rise simultaneously while the real income of the average household declines or stagnates. In response to these economic conditions, the Fed began to raise the FFR, and only in recent months have officials agreed to begin lowering it.

Over the last year, housing has been one of the main drivers of inflation. Since early 2019, the median selling price of a home in the US has shot up thirty-four percent, from 313,000 to 420,000.

Housing affordability continues to be a serious problem for many households, and the high prices in the market, coupled with high interest rates on mortgages, make entering the market as a first-time homebuyer very challenging. Earlier this month, the National Association of Realtors reported that in 2024, the share of homes purchased by first-time buyers dropped to 24 percent from 32 percent last year. Additionally troubling is that the age at which people purchase homes is continuing to rise. For all buyers, the average is 56 years, while that of first-time buyers is 38, up from 35 a year ago.

The forecasts are not promising for first-time homebuyers

Unfortunately, these trends show no signs of slowing. With home prices far outpacing real wage increases, the prospect of owning a home is out of reach for many. The Mortgage Bankers Association’s recent forecasts for 2025 and 2026 show that rates are not likely to come down much. The average for 2024 has stood around 6.7 percent, and next year, it is only expected to fall to 6.4 percent before ticking up to 6.6 percent in 2026.