The Future Forecast of Interest Rates: What Buyers/Sellers Might Expect through 2026

The Future Forecast of Interest Rates: What Buyers/Sellers Might Expect through 2026

 

TL;DR

• The Fed began easing in September 2025; the policy rate now sits at 4.00–4.25% with a cautious path ahead. Reuters+1

• Fed officials’ own projections (“dot plot”) point to a fed funds median ~3.6% at end-2025 and ~3.4% at end-2026—a gentle glide, not a steep drop. Federal Reserve

• Mortgage rates are likely to drift lower but stay ~6%+ in 2025, with some forecasters seeing high-5s by late 2026. Fannie Mae+1

• The swing factor is inflation: core PCE is ~2.9% y/y—better than 2023, but still above target. Reuters

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Where Rates Are Today

After its September 16–17 meeting, the Federal Reserve cut the policy rate by 25 bps to a 4.00–4.25% target range, citing a softer labor market and moderating growth. Officials stressed they’ll move “carefully” from here. Federal Reserve+1

In housing, the average 30-year fixed rate recently ticked to ~6.34%, up slightly after a late-summer dip—reminding us mortgage pricing can zigzag even during a broader downtrend. AP News

What the Fed Is Signaling (and Why That Matters)

The Fed’s Summary of Economic Projections (SEP) shows a median fed funds rate of ~3.6% (end-2025) and ~3.4% (end-2026), implying gradual—not aggressive—easing. Translation: the Fed expects to take rates lower, but only as inflation cools and the job market slows in a controlled way. Federal Reserve

Futures markets echo a slow path: the CME FedWatch tool shows traders pricing additional cuts into late-2025, with uncertainty around the pace into 2026. CME Group

Inflation: The Gatekeeper

The Fed’s preferred gauge, core PCE, is running about 2.9% y/y (August). Headline CPI is 2.9% y/y as of August as well. Both are improved from 2023, but still above the 2% target—hence the Fed’s caution. If inflation glides lower into the low-2s, expect a bit more policy easing and friendlier long-term yields. Reuters+1

The 10-Year Treasury: The Mortgage-Rate Anchor

Mortgage rates largely track the 10-year Treasury plus a spread. Recently, the 10-year has hovered near ~4.1%–4.2%—down from last year’s highs, but not “cheap.” Until inflation convincingly settles and recession risks rise, the 10-year likely remains around 4% with two-way risk. YCharts+1

Mortgage Rate Outlook: 2025–2026

Major forecasters broadly agree on a slow drift lower:

• Fannie Mae (Sept 2025): 6.4% by end-2025, 5.9% by end-2026 (30-yr fixed average). Fannie Mae

• Mortgage Bankers Association (MBA): ~6.5% by end-2025 and ~6.4% through 2026 (recent forecasts show a flatter path than Fannie’s). MBA+1

Near-term headlines can still nudge rates week-to-week, but the baseline is lower—but not low.

Scenarios to Watch

Base Case (most likely):

• Inflation glides toward ~2½% in 2026, growth cools, and the Fed trims rates gradually.

• 10-year Treasury oscillates around ~4%, mortgage rates trend into low-6s in 2025, testing high-5s by late-2026 if spreads behave. Federal Reserve+1

Upside Risk (rates fall faster):

• Sharper labor-market weakening or downside growth surprise pushes the 10-year closer to mid-3s; mortgage rates could print mid-5s earlier than expected. Officials have flagged labor softness as a reason to ease—but only if inflation cooperates. Reuters

Downside Risk (rates stay higher for longer):

• Inflation proves sticky (services/wages, tariffs, or energy), keeping the 10-year near/beyond 4% and mortgage rates stuck ~6¼–6¾% through 2026. Several Fed presidents recently warned against cutting too fast with inflation still elevated. Reuters+1

What This Means for You

Homebuyers & Move-Up Sellers

• Timing: If your affordability hinges on a “5-handle,” the consensus says late-2026 is your better shot; otherwise, plan around low-to-mid-6s in 2025. Fannie Mae+1

• Strategy: Consider rate buydowns or ARMs only if the discount is meaningful and you’re confident in your holding period. Keep an eye on spreads; they can widen unexpectedly and offset Treasury moves. MBA

Investors

• Cap rates vs. financing costs: With mortgage rates likely easing gradually, the bigger lever may be NOI growth and cap-rate stability rather than a sudden refinancing windfall.

• Term structure: Ladder maturities. If you expect late-2026 relief, design optionality to refi without punitive prepay once rates move. (The Fed’s SEP suggests only gentle declines, not a 2020-style plunge.) Federal Reserve

Refinancers

• If you’re in the 7s today, watch the 10-year: sustained prints near ~4% or below plus tight MBS spreads could make high-5s/low-6s refinance math work—especially with minimal points. YCharts

The Global Backdrop

The IMF projects steady—but unspectacular—global growth into 2026 and continued disinflation, consistent with a gentle policy-easing cycle worldwide (not a rapid pivot). That supports the “slow-drift-lower” rate narrative. IMF+1

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Key Sources & Further Reading

• Federal Reserve FOMC Statement (Sep 17, 2025)—Rate cut to 4.00–4.25% and cautious guidance. Federal Reserve

• Fed SEP / Dot Plot (Sep 2025)—Medians: 3.6% (’25), 3.4% (’26). Federal Reserve

• Inflation—CPI 2.9% y/y (Aug); Core PCE ~2.9% y/y (Aug). Bureau of Labor Statistics+1

• Market Pricing—CME FedWatch expectations for upcoming meetings. CME Group

• 10-Year Yield—Recent ~4.1% prints. YCharts

• Mortgage Rates Today—Recent average ~6.34% (AP). AP News

• 2025–2026 Mortgage Forecasts—Fannie Mae ESR; MBA Forecast. Fannie Mae+1

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Bottom Line

Barring a shock, 2026 looks friendlier than 2025, but this is a “walk, don’t run” easing cycle. Plan for low-6s in 2025, with a shot at high-5s by late-2026 if inflation keeps softening and bond markets cooperate. Keep your pre-approval fresh, watch points and spreads, and build flexibility into your financing so you can pounce when windows open. 

If you want to talk about the real estate market and where it's going, please don't hesitate to call, email or text The Carrabba Group!