Mortgage Rates Expected to Remain Above 7% Through 2027, Challenging Homebuyer Affordability

Mortgage Bankers Association chief economist Mike Fratantoni outlines the outlook for mortgage rates in 2027 and the implications for prospective homebuyers.

Americans seeking to purchase a home continue to confront a difficult affordability landscape, with elevated mortgage rates projected to persist into next year. Interest rates on a 30-year fixed mortgage have climbed more than a full percentage point since January, rising from 6.16% on Jan. 8 to 7.24% as of Oct. 29, according to Freddie Mac data.

Recent weeks have brought a modest pullback after rates peaked at 7.4% in early October—the highest level for the 30-year mortgage since the fall of 2023. Fratantoni told FOX Business that this run-up has “slowed activity quite a bit” compared with last year.

The interest rate on a 30-year fixed mortgage is near the highest level in three years. (iStock/Getty Images Plus)

Home purchase application volume is down roughly 15% from a year ago, while refinance applications have fallen even further. “At this level of rates, there’s just not a lot of incentive for folks to refinance their existing loans,” Fratantoni said.

This dynamic has reinforced a lock-in effect: current homeowners with low-rate mortgages are reluctant to sell and take on a new loan at a higher rate. “If you go back to where we were in the pandemic, we had record low mortgage rates — people were getting 30-year fixed mortgage rates below 3%,” Fratantoni noted. The surge in inflation that drove rates above 6% in 2022 created the lock-in dynamic that has reduced mobility in recent years.

“Now with mortgage rates spiking again, that’s just going to reinforce that effect,” he said, adding that he expects the pace of home sales and construction to slow over the next year relative to where the market would be at lower rates, as buyers wrestle with affordability constraints.

Mortgage rates are expected to remain above 7% throughout 2027, though Fratantoni noted the rates are sensitive to developments domestically and abroad. (Brett Coomer/Houston Chronicle via Getty Images)

Fratantoni describes homeownership affordability as a “three-legged stool” comprising mortgage rates, home prices, and household incomes. While rates have remained elevated, home prices have moderated in some regions, and wage growth is outpacing both rents and home prices across much of the country.

“It’s getting a little bit better, but this spike in mortgage rates is definitely the hurdle right now and affordability conditions remain challenging, particularly for a lot of first-time homebuyers,” he noted.

The affordability of homeownership is linked to mortgage rates, home prices and relative wage growth, Fratantoni said. (Kevin Carter/Getty Images)

The MBA’s outlook projects some relief from current levels, though rates are expected to stay above 7% throughout 2027. “Our expectation is that this spike we’ve had is probably a little bit overdone, so we think rates are going to come down a bit but are still going to remain above where we would have forecast just a couple of months ago,” Fratantoni said. “Our current forecast has the 30-year fixed mortgage rate staying above 7% really throughout 2027.”

He emphasized that the trajectory remains highly sensitive to geopolitical developments—including tensions in the Middle East and their impact on oil prices and inflation—the likely path of Federal Reserve policy, and persistent upward pressure on longer-term rates from large federal deficits and growing national debt.

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