Since the Federal Reserve began hiking interest rates in late 2022, buyers, sellers, lenders and originators have struggled to navigate a U.S. housing market caught in the vise grip of low for-sale inventory and high borrowing costs.
Since the beginning of 2025, various trends have loosened market conditions, however. Though purchase affordability remains a barrier many buyers still struggle to hurdle, easing mortgage rates and steadily climbing inventory have broadly loosened market conditions.
Thirty-year fixed-rate mortgage rates that began the year around 7% have remained below 6.5% for the past several weeks, and regional markets across the South and West have seen for-sale listings surpass pre-pandemic levels.
Also supporting marginally improved affordability, lackluster demand from buyers throughout 2025 has led to home price declines in some markets — especially in the South and West — and slowing appreciation in others, according to data from Clear Capital, a real estate valuation firm.
Meanwhile, slowing economic growth and weakening labor markets convinced Federal Reserve policymakers to lower the central bank’s benchmark borrowing rate at its September policy meeting.
But those headwinds may just work in the housing market’s favor.
“Long-term interest rates are expected to rise slightly by the end of 2025 but fall again in 2026 as growth weakens,” reads a new mortgage origination report from iEmergent, a real estate market intelligence firm. “That drop should spur a rebound in refinances and lift overall mortgage originations.”
By dollar volume, iEmergent projects total mortgage originations in 2025 to exceed $2 trillion for the first time since 2022, boosted by a 48% increase in refinance dollars and 12% increase in purchase dollars. That would reflect a 20% increase from 2024 volumes.
“Crossing back above $2 trillion in 2025 signals renewed strength in the mortgage market,” says Mark Watson, chief of forecasting at iEmergent. “By 2026, lower rates and moderating home prices should support activity, though affordability challenges will persist — especially for first-time buyers.”
The report cites spreading tariff impacts, waning consumer confidence and additional cooling in the labor market as influencing the growth outlook.
Weakening growth tends to generate less restrictive monetary policy from the Federal Reserve as it seeks to stimulate spending and job creation with lower borrowing costs for businesses and consumers.
The Fed does not set mortgage rates. Rather, mortgage rates are benchmarked to yields on 10-year U.S. Treasury bonds, which fluctuate with investor confidence in longer-dated government debt. Amid a range of factors, iEmergent’s forecast rests on 10-year Treasury yields falling as the U.S. economy weakens.
Federal deficit spending and sticky inflation concerns that could force the Federal Reserve to keep rates higher for longer may complicate this outcome. Minutes released from the Fed’s September meeting showed policymakers split on the appropriate path for additional rate cuts in 2025 and 2026, citing inflation concerns.
iEmergent forecasts total mortgage origination volume increasing by 13% from 2025 volumes to reach $2.27 trillion in 2026, with higher refinance volumes driving the increase.
