Will Housing Affordability Improve or Will Mortgage Rates Drop Soon?

September 23, 2025•3 min read

The State of Affordability Today

As of September 2025, home affordability remains one of the biggest challenges for buyers. Mortgage rates for a 30-year fixed loan are averaging around 6.7%, while home prices continue to climb due to limited inventory. According to recent housing market reports, the typical monthly mortgage payment is now nearly 90% higher than it was just five years ago.

The “lock-in effect” is a major driver of this trend: more than 80% of homeowners have a mortgage rate below 5%, and few are willing to give that up. This keeps inventory tight, which in turn keeps prices elevated—even as higher borrowing costs reduce buyer purchasing power.

Will Mortgage Rates Drop Anytime Soon?

Mortgage rates are closely tied to inflation trends, bond yields, and Federal Reserve policy. While the Fed has signaled that rate cuts could be on the horizon if inflation cools further, housing analysts caution that the process will be gradual.

Short-Term Outlook (next 6 months): Rates may hover in the mid-6% range, with volatility tied to economic reports. A sudden jump in inflation data could cause rates to spike again.
Medium-Term Outlook (2026): Forecasts from Fannie Mae and other market watchers suggest rates could ease closer to 6.1% by mid-to-late 2026. That’s lower than today, but not the dramatic drop many buyers are hoping for.

In other words, rates are more likely to drift down slowly than fall sharply.

Will Housing Affordability Improve Instead?

Even if mortgage rates dip modestly, affordability may not improve significantly without relief on the pricing side. Home values remain historically high, and demand continues to outpace supply. A meaningful improvement in affordability will likely require a combination of:

Rate Cuts – A drop of even half a percentage point can save hundreds of dollars per month on a mortgage.
Inventory Growth – More new home construction or increased resale activity could help balance supply and demand.
Slower Price Appreciation – While economists don’t forecast a major price decline, slower growth in 2026 could give incomes a chance to catch up.

What Buyers Can Do Now

If you’re waiting for affordability to improve, here are strategies to keep in mind:

Consider Adjustable-Rate Mortgages (ARMs): These start with lower initial rates than fixed loans, which can reduce payments in the near term.
Expand Your Search: Exploring different neighborhoods or smaller homes may help you stay within budget.
Get Pre-Approved with Multiple Lenders: Even in a high-rate market, comparing offers can save you a quarter point or more.
Stay Market-Aware: Track inflation and Fed policy updates, since these are the biggest drivers of rate movement.

Final Thoughts

Affordability challenges aren’t going away overnight. Mortgage rates could decline modestly in 2026, but unless inventory grows and price gains slow, many buyers will still feel the squeeze. For those who need to move sooner rather than later, locking a rate below today’s average and shopping carefully may be the best strategy.

On the other hand, if you’re flexible and comfortable waiting, monitoring economic conditions over the next year could position you for lower borrowing costs.

Either way, partnering with a knowledgeable loan advisor can help you weigh your options and make the smartest move for your financial goals.