The Mortgage Bankers Association (MBA) has raised its forecast for mortgage rates through the first half of 2027 as elevated inflation and government bond yields maintain pressure on long-term borrowing costs.

Mortgage rates for 30-year fixed-rate loans that meet the underwriting guidelines of Fannie Mae and Freddie Mac are now projected to spend the fourth quarter around 6.8% and remain at that level through next June, the mortgage trade group said late last week.

That compares to prior-month forecasts of 30-year rates averaging 6.7% through the remainder of 2026 and through the duration of 2027. It is meaningfully higher than July outlooks of 6.5% rates through the end of next year.

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The MBA also reduced its projections for single-family mortgage origination volumes, which have been slashed repeatedly in recent months as borrowing costs have steadily risen.

Refinance production is now expected to end 2026 around $700 billion, well down from the $713 billion projected in August and $747 billion forecast in July. Year to date, that reflects a nearly 8% decline from the $760 billion in full-year refinance volume projected by the MBA in January.

Dimming prospects for a rate rebound cut refinance projections down to just $634 billion for full-year 2027.

Rapidly shifting interest rate outlooks

On the purchase side, the MBA’s latest forecast shows volumes hitting about $1.42 trillion in 2026, down from $1.43 trillion forecast in August and $1.44 trillion projected at the start of the year. Purchase volumes are now forecast to fall just under $1.47 trillion next year, compared to August forecasts of nearly $1.49 trillion.

The upward revision to mortgage rates and downward revision to lenders’ production volumes followed the Federal Reserve’s unanimous decision last week to raise the federal funds rate by a quarter of a percentage point. That increased the benchmark overnight lending rate for banks to a target range between 3.75% and 4%.

Fed officials also overwhelmingly signaled that one additional quarter-point hike was on tap for 2026, with a third increase potentially occurring in the first half of 2027.

The Fed does not set mortgage borrowing costs, but its benchmark rate does establish a floor for interest rates across the broader U.S. economy. That includes longer-dated U.S. Treasury yields to which 30-year mortgage rates are benchmarked.

Yields on 10-year Treasurys crossed 5% last week for the first time since 2007 — up from around 4% in late February — as surging corporate bond issuance, concerns about federal deficits and higher inflation expectations led investors to demand higher returns.

Treasury yields expected to stay elevated

Fed Chair Kevin Warsh told reporters last week that the central bank’s preferred inflation gauge, the personal consumption expenditures price index, was running at around 3.6% in August. The PCE index has been above the Fed’s 2% target for more than five years but has sharply accelerated since the Iran war began in late February.

After forecasting in January that 10-year Treasury yields would end 2026 around 4.2%, the MBA’s latest projections show the 10-year yielding 4.8% at the end of this year and falling only slightly to 4.7% by the end of 2027.

Mortgage rates hovered just under 7% during the first two weeks of September, according to MBA and Freddie Mac rate indexes.

That means the MBA’s forecast for 30-year rates averaging 6.8% in the fourth quarter would require some softening in Treasury yields and investors’ inflation outlooks over the coming weeks and months.

Mortgage giant Fannie Mae has recently suggested some of that softening may occur. Also updating its housing finance forecast last week, Fannie now expects 30-year rates to average 6.8% for the next three months before declining to 6.7% during the first quarter. Fannie expects rates to hold that level through the rest of 2027, compared to prior forecasts of 6.8% rates through the duration of next year.

Whereas MBA economists see 10-year yields declining to 4.7% by the start of 2028, economists at the government-sponsored mortgage investor maintained their prior-month outlook from September. Fannie’s forecast calls for 10-year yields averaging 4.8% during the fourth quarter and increasing to 4.9% throughout the back half of 2027.