Why Mortgage Interest Rates are Unlikely to Fall in 2026

For much of the past decade, investors and homeowners were conditioned to believe that high interest rates are temporary and that relief is always just around the corner. That belief has become deeply ingrained: whenever rates rise, markets immediately begin pricing in cuts. But as we look ahead to 2026, that assumption deserves serious scrutiny. The structural forces shaping the U.S. economy today suggest that mortgage interest rates are far more likely to remain elevated than to meaningfully decline.

This is not a cyclical argument. It is a structural one.

The Era of “Free Money” Is Over

From 2009 through 2021, interest rates were artificially suppressed by extraordinary central-bank intervention. Quantitative easing, near-zero policy rates, and massive bond-buying programs distorted the cost of capital across the economy. Mortgage rates below 3% were not normal—they were a policy choice.

That era ended when inflation reasserted itself. Once inflation became entrenched, the Federal Reserve’s primary mandate shifted decisively back to price stability.

As a result, the Fed is unlikely to return to the ultra-accommodative posture that defined the 2010s. A higher “neutral rate” is now widely accepted, and mortgage rates—priced off longer-term Treasury yields—will reflect that reality.

Why Mortgage Rates Don’t Follow the Fed One-for-One

A critical—and often misunderstood—point is that mortgage rates are not directly set by the Federal Reserve. They are primarily based on the 10-year U.S. Treasury yield, which reflects long-term market expectations for inflation, economic growth, fiscal policy, and risk—not the overnight federal funds rate.

The federal funds rate influences very short-term borrowing between banks. The 10-year Treasury, by contrast, is determined by global investors who are pricing:

• long-term inflation expectations,

• the supply of Treasury debt,

• fiscal deficits,

• geopolitical risk, and

• the real return required to hold U.S. government debt for a decade.

As a result, it is entirely possible—and historically common—for the Fed to cut its target rate while long-term yields remain flat or even rise. If investors believe rate cuts are inflationary, fiscally destabilizing, or unsustainable, they will demand higher yields on long-term bonds. Since mortgage-backed securities are priced as a spread over the 10-year Treasury, mortgage rates can remain stubbornly high even in a rate-cutting cycle. This structural independence further weakens the case for lower mortgage rates in 2026.

Persistent Inflationary Pressures Remain

While headline inflation numbers may ebb and flow, several inflationary forces are unlikely to disappear by 2026:

• Labor costs remain structurally higher due to demographics and workforce constraints.

• De-globalization and supply-chain reshoring increase production costs.

• Energy transition and infrastructure spending add sustained fiscal pressure.

• Housing shortages continue to push shelter costs higher.

These forces make it difficult for inflation to sustainably return to the low levels that once justified ultra-low mortgage rates.

Federal Debt and Treasury Supply Matter

The U.S. government is issuing debt at an unprecedented scale. Persistent deficits mean a constant and growing supply of Treasury securities that must be absorbed by global markets. This places upward pressure on long-term yields, independent of the Fed’s short-term policy decisions.

Mortgage rates, tied to these long-term yields, reflect this reality. Without a meaningful shift toward fiscal restraint—an unlikely outcome—this pressure will persist through 2026.

The Fed Cannot Risk Re-Igniting Inflation

Markets often assume that slowing growth guarantees rate cuts. But the Fed now understands the danger of easing too early. Cutting aggressively risks reigniting inflation, undermining credibility, and forcing harsher tightening later.

That institutional memory matters. Even if growth slows, policymakers are likely to remain cautious, reinforcing the likelihood that long-term rates—and mortgage rates—remain elevated.

Housing Market Dynamics Limit Rate Relief

Millions of homeowners are locked into mortgages below 4%, restricting housing supply. Lower rates would unleash demand without materially increasing inventory, pushing prices higher and worsening affordability.

Policymakers are aware of this feedback loop. Sustained rate cuts would likely exacerbate housing inflation rather than resolve it.

What This Means Going Forward

The expectation that mortgage rates will fall meaningfully in 2026 is rooted more in nostalgia than in economic reality. The conditions that produced ultra-low rates—subdued inflation, globalization tailwinds, and massive central-bank intervention—no longer exist in the same form.

Instead, we are entering a period defined by higher structural inflation risk, elevated government borrowing, and more cautious central banking. In that environment, mortgage rates are far more likely to remain range-bound at higher levels than to revisit historic lows.

For homeowners and investors alike, the challenge is not to wait for rates to fall—but to adapt to a world where the cost of capital is no longer artificially cheap.

This information is for educational purposes only and does not constitute direct investment advice or a direct offer to buy or sell an investment, and is not to be interpreted as tax or legal advice.

Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Insurance products offered through Concorde Insurance Agency, Inc. (CIA). 1031 Capital Solutions is independent of CIS, CAM and CIA.