Mortgage Rates and Home Prices Are Changing. How to Get Ready.

A larger supply of homes for sale, both from owners and those listed by builders, will give buyers more options, a trade group says. (Al Drago/Bloomberg)

Key Points

• Mortgage rates are expected to remain above 6% for the next two years, with national home prices stagnating, according to the Mortgage Bankers Association.
• A larger supply of homes, including new construction, will increase buyer options and temper price gains, leading to an expected rise in transactions.
• Sales of new and existing homes are projected to increase by 4.6% and 5.1%, respectively, next year, with mortgage origination volume rising 7.6%.

Housing costs should stabilize in the coming years. It won’t be in the form of a big drop in mortgage rates or home prices that many would like, but the market will be more favorable for buyers than sellers.

That’s according to the Mortgage Bankers Association’s latest forecast, which anticipates fixed 30-year mortgage rates hovering above 6% while home prices nationally stagnate over the next two years. Buyers who aren’t pushed to the sidelines from job market softening should have an easier time, the association’s chief economist Mike Fratantoni.

“Staying in the low sixes…is certainly better than the 7’s and 8’s that we saw over the past couple of years,” Fratantoni said in an interview. “We still have seen this really rapid run up in home prices over the last five years—but [housing costs are] going to be more level over the next several years.”

A larger supply of homes for sale, both from owners and those listed by builders, will give buyers more options and tamp down price gains in the coming years, the Mortgage Bankers group says.

“In ’23 and ’24, much of the story was willing buyers, but no properties available to buy,” says Fratantoni, who notes that houses are sitting on the market for longer. “That has changed a lot in ’25—particularly on the new-construction side, but increasingly, month by month, on the existing-home side, too.”

The trade group expects a few quarters of home price declines of less than 1% in late 2026 and early 2027.

These factors will cause transactions to pick up. Sales of new and existing homes are expected to rise 4.6% and 5.1% next year, respectively, according to the forecast. Mortgage loan origination volume will rise 7.6%, as sales rise and some homeowners refinance.

If rates were to fall below 6%, demand for home loans would ramp up as buyers return to the market, and owners with higher rates refinance, says Eric Hagen, a BTIG analyst covering mortgage and specialty finance. But “there’s healthy turnover” even with rates around 6.5%, Hagen adds. “I think the market does fine and will move along at six-and-a-half or even seven, but really takes off below 6%,” he says.

Mortgage applications tracked by the trade group are up from year-ago levels—but home sales that have closed remain relatively low historically. Existing-homes in September changed hands at a seasonally adjusted annual rate of 4.06 million, the National Associaiton of Realtors said Thursday, lower than the prepandemic norm above five million.

Nationally, the market looks different from the ultrafast pace of home sales during the pandemic, with existing sales on track to end 2025 near the lowest level since the mid-1990s. A panel of economists surveyed by Fannie Mae in the third quarter pinned the slowdown in part on a smaller pool of buyers who can afford to purchase a home, and hesitancy spurred by uncertainty around macroeconomic and geopolitical events.

Economists’ forecasts often focus on national projections for sales and prices—but that national number obscures local nuances. “It’s real estate, so location matters a lot,” Fratantoni says.

Prices will hold up better in the Northeast and Midwest, where home construction hasn’t been as plentiful as in the sunbelt, he says.

Buyers in supply-heavy markets are set to find the best deals. “You’re both seeing more properties on the market, and also you have a whole lot more negotiating power,” Fratantoni says. “And if you’re in the market for a new home, the opportunities for permanent rate buy-downs are widely available on a lot of these properties.” Builders have long offered incentives to buyers, such as temporarily or permanently reducing their mortgage rates, to keep homes selling.

Adjustable-rate mortgages, or ARMs, are set to grow in popularity as the yield curve steepens, Fratantoni says. More than 1 in 10 home loan applicants during the week ended Oct. 17 applied for an adjustable loan, survey data show. Such products typically lock in a borrower’s rate for a set period, such as five or seven years, before switching to a rate that adjusts regularly. The average rate last week on a 5/1 Arm was 5.55%, compared with a 6.37% average rate for a conforming 30-year fixed-rate loan.

Owners angling to sell in places with a lot of new-home construction will find themselves competing with builders offering “all kinds of incentives,” Fratantoni notes. Sellers in those markets need to make sure their home stands out and pay attention to local market dynamics.

“It is not 2024, and the buyer has a whole lot more leverage,” he says.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com