Mortgage Rates Projected to Drop Below 6% by End of 2026

Fannie Mae has updated its outlook for the U.S. housing market, projecting that mortgage rates will fall below 6% by the end of 2026. According to the organization's March Housing Forecast, the anticipated decline in rates aims to provide relief to prospective homebuyers who have faced significant affordability hurdles due to elevated borrowing costs.

However, the report highlights a critical caveat regarding inventory levels. While lower interest rates are expected to stimulate demand, Fannie Mae warns that the housing market continues to suffer from a severe supply shortage. The persistent lack of available homes for sale threatens to offset the benefits of cheaper financing by keeping home prices elevated. Even as mortgage rates retreat toward the 5.7% mark, the scarcity of inventory remains a primary barrier to market liquidity and improved accessibility for first-time buyers.

The forecast suggests that the housing sector will remain in a state of tension between easing monetary conditions and structural supply constraints. As rates move downward over the next two years, the market will likely see increased competition for the limited number of properties hitting the market, potentially preventing a significant correction in home valuations.