Key facts
- Mortgage rates are expected to remain above 7% for the foreseeable future.
- Mortgage applications have declined for two consecutive weeks.
- The Mortgage Bankers Association forecasts two additional Federal Reserve rate hikes in the next year.
- The MBA projects 2027 origination volume at $2.101 trillion, down from previous forecasts.
- Fannie Mae also lowered its single-family mortgage origination estimates for 2026 and 2027.
- Homeowner equity reached $17.9 trillion in the second quarter of 2026.
Higher mortgage rates are expected to continue to depress mortgage origination volumes through 2027, according to industry forecasts. Published rates for 30-year conforming loans averaged 7.32% this week, a 4 basis point increase from the previous week, while jumbo loan rates dipped slightly to 7.40% and FHA loan rates rose to 7.00%.
Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA), stated that mortgage demand has declined for two consecutive weeks, with both purchase and refinance activity falling below year-ago levels. He attributed this to mortgage rates hovering around 7%, which he said continues to weigh on affordability and borrower demand, particularly for prospective homebuyers.
MBA’s senior vice president and chief economist, Mike Fratantoni, noted that lenders had already anticipated further Federal Reserve rate hikes. With annual inflation at 3.4% in August, remaining above the Fed's 2% target, Fratantoni forecasts two additional hikes from the Fed over the next year and expects mortgage rates to remain near current levels.
Dan Ribler, vice president of capital markets and strategy for Longbridge Financial, reminded originators that mortgage rates closely track the 10-year Treasury yield, which has been rising. He suggested that oil prices have a more significant impact on long-term inflation expectations and thus on mortgage rates than the Fed's overnight rate decisions.
The MBA projects 2027 origination volume to be $2.101 trillion, a decrease from its August forecast of $2.144 trillion and below the $2.123 trillion expected for 2026. Fannie Mae also reduced its estimates, anticipating single-family mortgage originations of $2.121 trillion in 2026 and $2.279 trillion in 2027. Large lenders like Pennymac Financial Services have indicated that higher rates are impacting closed loan volumes, with preliminary data showing a run rate that would put them roughly 28% below their second-quarter performance.
Despite reduced origination volumes, homeowner equity remains strong, reaching $17.9 trillion in the second quarter of 2026. The average loan-to-value ratio is 44%, with only 2.1% of mortgages considered underwater. Selma Hepp, chief economist at Cotality, stated that the primary challenge is affordability, not leverage, and that a significant amount of home equity remains untouched.