2025 was supposed to usher in lower mortgage rates and yet they barely budged even though the federal reserve cut rates multiple time. Now 2026 is predicted to be the savior of real estate with much lower mortgage rates. How accurate are these predictions? What can we learn from the chart above? What do the readers of this blog predict for rates next year? What big move did President Trump make that could radically alter any predictions?
30 year bond predicts long term inflation
Although the 30 year bond is not the 10 year treasury that is basically the “peg” for mortgage rates, it does show the long term market expectations for treasuries and in turn mortgage rates. If we look at the chart above the latest predictions averaged across the market show that 30 year rates will remain about where they are today give or take ½%.
I would agree with these predictions as government spending is off the charts both in the US and throughout the world which will ultimately lead to substantially more treasuries for sale and ultimately higher rates (remember treasury prices and rates work in inverse).
Mortgage rate predictions are wrong, they will be much higher for longer
If you look at many mainstream real estate publications interest rates are predicted to fall well below where they are today. Unfortunately, I think these predictions are dead wrong. To determine where mortgage rates will be in 2026 if I lined up the 30 year historical chart above along with the historical mortgage chart below, it implies that rates will be very similar to where they were in 2008 which would put mortgage rates through 2026 in the 6.25 to 7% range which is about where they are now.
Even looking beyond 2026 rates will stay well above the ultra low rates from 2009 to 2019 as government spending ramps up which will keep rates considerably higher than the last 10 years.
What do real estate pros predict for mortgage rates
I did a survey of my readers late last year on where they felt mortgage rates would be one year from now. As you can see from the survey rates will more than likely stay higher for longer. Personally I think the responses were a bit optimistic as my prediction is that rates will stay in the 6-7% range, but they could trade on the higher end of the range depending on budget deficits, inflation, etc.. The key takeaway is that it is highly unlikely that rates will fall back to anywhere close to the pandemic numbers.
What do 6% and above rates mean for residential and commercial real estate?
With rates staying higher for longer there will be huge impacts on real estate prices:
Residential: Higher rates eventually will lead to declining prices especially in higher priced markets as less people can afford to purchase expensive houses. Assuming a 500k mortgage at a 4% rate precovid the payments would be 2,387/month, now fast forward and that same mortgage would be 3160/month. This is an extra 9300/year in mortgage payments. This huge jump in payments does not work for most prospective buyers which will ultimately lead to prices falling in order to increase affordability. The million dollar question is how much? I think most markets will reset to the tune of 10-15% with some even higher. Many markets might just kick along with basically zero appreciation which means they are losing value if inflation is increasing at 3%/year.
Commercial: We have not even come close to seeing the bottom in the commercial market. As rates remain higher cap rates will also need to rise which will ultimately lead to a much deeper reset in commercial property values. Billions in mortgages are going to reset over the next few years and for now lenders have kicked the can down the road but as rates remain higher for longer eventually the market will have to face the music of much lower property values. For example, I’ve seen office buildings trading at 20-30% off their values from just a few years ago. You will also see a further reset in multifamily and retail as cap rates are way too low with treasuries staying higher for longer.
The Trump Wildcard of Fed independence
The wildcard to any of my prediction is the independence of the Federal Reserve. President Trump has made numerous passes at the independent nature of the federal reserve. Most recently he is trying to bully Chaiman Powell into stepping down as a result of litigation over the costs of the federal reserve buildings upgrade costs. Long and short, the federal reserve independence is critical to a functional rate market. As the fed’s independence gets compromised, look for a “rate premium” to play into the market which could drive long term rates higher. Based on what we are seeing today, this is a real risk and could lead to higher inflation along with a higher risk premium to hold US treasuries resulting in higher long term yields.
Interest rates will be stuck higher for much longer
The recent fed meeting predicts maybe one cut next year or possibly no further cuts as inflation remains high. Unfortunately the market is dead wrong on the assumption that interest rates will rapidly fall anytime soon. We are already seeing this play out today as the fed has cut rates multiple times and yet mortgage rates have not made huge movements downward. Unfortunately, larger government spending, inflationary pressure and the push for a soft landing will keep long term rates like mortgages much higher for much longer than is being priced in.
Since the market hasn’t come to terms with higher for longer, the market is grossly underestimating the impacts to residential and commercial real estate. With mortgage rates above 6% through 2026, both residential and commercial real estate is primed for a correction in higher priced markets as the current prices are not sustainable in a higher rate environment. For example, why would someone buy a commercial property on a 4-5% cap when they can buy a government bond with the same return with zero risk. Unfortunately, they would not, which means prices must adjust downward.
Unfortunately predicting when the reset will occur is challenging as macro factors like a war, surge in oil prices, stock market meltdown, fed indepence, etc… can happen out of nowhere. With that said, my best guess is the second half of 2026 as the market comes to grips that low long term rates are not going to bail out the real estate market as rates stay higher for longer.
On the flip side, there is also a good possibility that the residential market merely kicks along the next several years with only a minor correction in pricing and basically a “stuck” market like we have seen in 2025. We will wait to see how this plays out later this year but the key takeaway is that don’t bank on sharp interest rate reductions to bail out real estate in 2026 and beyond.
Additional Reading/Resources
- https://fred.stlouisfed.org/series/MORTGAGE30US
- https://econforecasting.com/forecast/t30y
- https://www.fairviewlending.com/fed-cuts-rates-why-are-mortgage-rates-rising/
- https://www.fairviewlending.com/commercial-real-estate-what-is-causing-the-decline/
- https://www.fairviewlending.com/mortgage-rates-one-year-from-now/
- https://www.fairviewlending.com/fed-drops-rates-why-did-mortgage-rates-barely-budge/
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. I’m not an armchair reporter/writer. We are an actual private lender, lending our own money. We service our own loans and own commercial and residential real estate throughout the country.
My day job is and continues to be private real estate lending/ hard money lending which enables me to have a unique perspective on the market. I don’t accept any paid sponsorships or ads on my blog to ensure accurate information. I’ve been writing this for almost 20 years and have over 30k subscribers. Please like and share my blogs on linkedin, twitter, facebook, and other social media and forward to your friends 😊. I would greatly appreciate it.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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