What is the story about?
Mortgage rates have begun to ease, reaching their lowest levels of 2025, but prospects for a sharp drop in borrowing costs remain limited as the US housing market heads into 2026.
The average rate on a 30-year fixed mortgage has fallen to 6.15 per cent, according to Freddie Mac, marking a modest weekly decline but a significant pullback from levels seen earlier in the year. The rate is now around 76 basis points lower than a year ago, while the 15-year fixed mortgage rate has eased to about 5.44 per cent.
While the downward trend offers some relief to prospective homebuyers, analysts say expectations of rates falling decisively below 6 per cent may be unrealistic in the near term. Mortgage rates have declined gradually over recent months, but the pace has been slow and uneven.
The easing comes against the backdrop of multiple interest rate cuts by the US Federal Reserve in 2025. The central bank lowered the federal funds rate three times last year, moves that typically support lower borrowing costs across the economy. However, mortgage rates do not track the policy rate directly and have tended to stabilise or even rebound after initial declines linked to rate-cut expectations.
Looking ahead, the Federal Reserve has indicated it is likely to cut rates only once in 2026, dampening hopes of a sustained fall in mortgage costs. Market participants also note that mortgage rates are more closely tied to yields on 10-year US Treasury bonds, which remain elevated despite easing from last year’s highs.
As of early January, the 10-year Treasury yield stood near 4.2 per cent, down from around 4.5 per cent a year earlier. Mortgage lenders typically add a risk premium, or spread, over Treasury yields, and while this spread has narrowed, it remains wide enough to keep home loan rates well above pre-pandemic norms.
Housing market dynamics further complicate the outlook. A persistent shortage of homes for sale has kept prices elevated, particularly for properties affordable to first-time buyers. Even if mortgage rates were to decline further, lower borrowing costs could spur demand and put renewed upward pressure on prices.
Data from the Federal Reserve Bank of St. Louis show that median US house prices have more than doubled since 2009, reaching over $410,000 by mid-2025. Economists warn that without a meaningful increase in housing supply, affordability is unlikely to improve significantly.
For buyers considering a purchase in early 2026, experts suggest focusing less on trying to time interest rate moves and more on overall affordability, including home prices and personal finances. While conditions have improved slightly, the combination of still-high rates and elevated property values means meaningful relief for buyers may take longer to materialise.
The average rate on a 30-year fixed mortgage has fallen to 6.15 per cent, according to Freddie Mac, marking a modest weekly decline but a significant pullback from levels seen earlier in the year. The rate is now around 76 basis points lower than a year ago, while the 15-year fixed mortgage rate has eased to about 5.44 per cent.
While the downward trend offers some relief to prospective homebuyers, analysts say expectations of rates falling decisively below 6 per cent may be unrealistic in the near term. Mortgage rates have declined gradually over recent months, but the pace has been slow and uneven.
The easing comes against the backdrop of multiple interest rate cuts by the US Federal Reserve in 2025. The central bank lowered the federal funds rate three times last year, moves that typically support lower borrowing costs across the economy. However, mortgage rates do not track the policy rate directly and have tended to stabilise or even rebound after initial declines linked to rate-cut expectations.
Looking ahead, the Federal Reserve has indicated it is likely to cut rates only once in 2026, dampening hopes of a sustained fall in mortgage costs. Market participants also note that mortgage rates are more closely tied to yields on 10-year US Treasury bonds, which remain elevated despite easing from last year’s highs.
As of early January, the 10-year Treasury yield stood near 4.2 per cent, down from around 4.5 per cent a year earlier. Mortgage lenders typically add a risk premium, or spread, over Treasury yields, and while this spread has narrowed, it remains wide enough to keep home loan rates well above pre-pandemic norms.
Housing market dynamics further complicate the outlook. A persistent shortage of homes for sale has kept prices elevated, particularly for properties affordable to first-time buyers. Even if mortgage rates were to decline further, lower borrowing costs could spur demand and put renewed upward pressure on prices.
Data from the Federal Reserve Bank of St. Louis show that median US house prices have more than doubled since 2009, reaching over $410,000 by mid-2025. Economists warn that without a meaningful increase in housing supply, affordability is unlikely to improve significantly.
For buyers considering a purchase in early 2026, experts suggest focusing less on trying to time interest rate moves and more on overall affordability, including home prices and personal finances. While conditions have improved slightly, the combination of still-high rates and elevated property values means meaningful relief for buyers may take longer to materialise.
