Any honest 2026 mortgage rate forecast starts with a fact most investors skip: rates already dropped. They peaked near 7.92% in October 2023 and now sit around 6% on good conventional paper and in the mid-5s on government loans. The realistic case for the rest of this year is more of the same pattern — a general decline punctuated by quarter-point swings, possibly reaching 5.5% by year end, but not in a straight line.
Justin Humphries, a mortgage lender who originates in Nashville, Atlanta, Cleveland and parts of Florida and is a member of Investor Fuel, tracks the capital-markets plumbing behind those moves daily. His read: the rate number matters less to your deals than three other things — inventory that has split hard by region, a lock-in effect that is finally cracking, and FHA loan modifications quietly absorbing distress that would otherwise show up as foreclosures.
What follows is where rates stand, what moves them, and how each of those signals should change what you buy, how you price exits, and what you tell a buyer before they sign.
Key takeaways
- Mortgage rates fell roughly two full points from the October 2023 peak near 8%; good conventional paper is around 6% and government loans are in the mid-5s. Waiting for a bottom means missing the move that already happened.
- Expect peaks and valleys, not a slide. A path that touches 6.5% at one point and 5.25% at another before settling near 5.5% is consistent with the last two years of behavior.
- Inventory is regional. Northeast and Midwest markets are below pre-pandemic listing counts with faster appreciation, while Tennessee runs about 34% above — price your exits to the market you’re in, not the national headline.
- Mortgages above 6% now outnumber sub-3% loans for the first time, and rising taxes and insurance are pushing locked-in owners to sell anyway.
- FHA defaults are ticking up, but servicers are curing them with 40-year term extensions, half-point rate cuts and balloon payments. Foreclosure counts understate real distress.
From the Investor Fuel Show
This article draws on an interview with Justin Humphries on the Investor Fuel Show, hosted by Mike Hambright. Watch or listen to the full interview.
Where Mortgage Rates Actually Stand Heading Into 2026
Rates ran from about 3% in January 2022 to a peak of 7.92% — above 8% on some indexes — by October 2023. That is roughly 22 months for a five-point move, and it is the sharpest repricing most operators working today have lived through.
Since that peak, rates have come down about two points. Well-qualified conventional borrowers are pricing near 6%. FHA and VA borrowers are in the mid-5s. When investors ask Humphries when rates will drop, his answer is that they already did, and more may follow.
Two things produced that decline. The first is easing inflation. The second, less discussed, is tightening spreads between mortgage-backed securities and the 10-year Treasury. When that spread compresses, mortgage rates fall relative to the Treasury even if the Treasury itself does not move, which is why mortgage rates sometimes decouple from the headlines about Fed cuts.
The inflation point deserves precision, because it drives buyer behavior. Inflation peaked above 9% and has stabilized in the 2.7% to 2.9% range. That is a slower rate of increase, not falling prices, and it compounds on top of everything already absorbed since 2021.
Humphries frames it with a simple comparison: 3% appreciation on a $100,000 house is $3,000. The same 3% on a $400,000 house is $12,000. Same percentage, different cost basis. Consumers hear “inflation is down” and expect relief at the closing table, and they do not get it. That gap between perception and payment is the single most common reason a retail buyer walks in with expectations that will not survive underwriting.
The 2026 Mortgage Rate Forecast Is a Sawtooth, Not a Slide
The pattern over the last 18 to 24 months has been a general decline with visible peaks and valleys, and Humphries expects that to continue. His base case is that 5.5% by year end is achievable. His realistic band is wider: a stretch at 6.5% at one point and 5.25% at another is entirely foreseeable given how the last two years behaved.
The catalysts pulling in both directions are worth knowing by name:
- FHFA action on Fannie and Freddie. Director Bill Pulte directed the agencies to deploy roughly $250 billion in reserves buying their own mortgage-backed securities, soaking up supply the way quantitative easing would. When that news landed in January, rates fell a quarter point on the headline alone and some borrowers locked at 5.99% before rates drifted back toward 6%.
- The Fed sitting out. The Federal Reserve has opted out of buying MBS for now, which is why the Fannie and Freddie directive matters.
- A likely change at the Fed. Humphries expects Kevin Warsh as the next chair and reads him as considerably more inclined toward quantitative easing and MBS purchases.
- Geopolitics. The Iran operation pushed rates back up roughly a quarter point. His expectation is that they retrace once the situation stabilizes.
- Labor data revisions. Repeated downward revisions from the BLS suggest a weaker economy than reported, which is rate-friendly.
Policy adds noise on top. The administration has stated two conflicting goals — keep home prices elevated to protect existing equity while pushing rates down for buyers — and floated ideas like the 50-year mortgage to see how markets react. Treat those headlines as volatility, not direction.
I get questions all day: when are rates going to drop? And my answer is the same. They have. May they drop more? Absolutely. But they’re down about 2% from the peak in October 2023.
— Justin Humphries, mortgage lender and Investor Fuel member
Inventory Is Regional, Not National — and That Changes Your Buy Box
The national inventory number is useless for pricing a deal. Across the markets Humphries originates in, the split is stark.
The Northeast and Midwest are largely below pre-pandemic inventory. Fewer listings, tighter conditions, price points moving up faster. That is the appreciation-friendly side of the country right now, and Cleveland is one of the markets where he sees it.
The COVID-boom Sunbelt markets are the opposite. Austin, Tampa and Nashville are running well above pre-pandemic listing counts, with Tennessee statewide roughly 34% above. The practical symptoms are longer days on market, more seller concessions, and downward pressure on list prices.
The cause is timing. Builders who broke ground between 2020 and 2023 needed a couple of years to deliver, and that inventory arrived into a market with 6% money instead of 3%. Some of it has been relisted. Builders are now pulling back hard in those same Sunbelt markets, which will eventually tighten supply, but the overhang is on the ground today.
For a wholesaler or flipper, this changes your exit math more than the rate does:
- In an above-supply Sunbelt market, underwrite a longer hold, budget for seller concessions to the buyer, and price the ARV off recent closed comps rather than active list prices that are sitting.
- In a below-supply Northeast or Midwest market, you have more room on price and less concession risk, but acquisition competition is where your margin gets squeezed.
Do not apply a single national assumption across a portfolio spread over both.
The Lock-In Effect Is Breaking Open — Here Is the Evidence
The clearest datapoint: a few months ago, the number of outstanding mortgages above 6% crossed over the number below 3%. There are now more 6%-plus loans than sub-3% loans. The pool of owners holding cheap money is shrinking as a share of the market.
Behaviorally, sellers are trading rate for fit. Families who bought in 2020 with no kids and now have three are bursting out of the house and moving up, using price gains to put larger down payments on the next one. Empty nesters are going the other way. Neither group loves 6%, but both have accepted it, and Humphries sees move-up buyers back in the market in a way they were not two years ago.
Carrying costs are doing the rest of the work. Property taxes in Texas have climbed to the point where a $10,000 annual bill is ordinary. Insurance has exploded in Florida, Louisiana, Georgia and Texas. Roughly 60% to 70% of Florida homeowners are now on Citizens, the state insurer of last resort, which levies one-time assessments on policyholders after bad loss years. In specific coastal pockets in Florida and Louisiana, quotes reach $30,000 and some owners are going without coverage entirely — those pockets are effectively uninsurable.
An owner with a 3% note can still be forced out by taxes and insurance. That is the seller lead most wholesalers are underwriting incorrectly.
It cuts both ways on your own deals. Humphries has had to raise the homeowners insurance figure he plugs into payment estimates for buyers and investors. If your rental model still uses a three-year-old insurance number in any of those states, your cash flow is wrong.
What FHA Defaults and Loan Modifications Are Hiding
This is not 2008, and the reason is equity. Conventional, VA and USDA loans originated over the last several years were tightly underwritten, and the refinance cohort in particular is high-equity, low-rate and well qualified. Nobody walks away from $100,000 in equity and a 3% note. Default rates on that paper remain very low.
The stress sits in FHA. Defaults there are ticking up. FHA default rates are structurally higher than conventional — you can be approved with a 590 score, 3.5% down and a higher DTI allowance — so an increase is not automatically alarming. Humphries does not consider the current level high or unsustainable, but he treats the FHA default rate over the next 12 to 18 months as the single number to watch for where distress is heading.
The part that matters for anyone buying distress: servicers are curing those defaults instead of foreclosing. Reviewing client mortgage statements, Humphries sees loan modifications constantly. The tools are consistent:
- Extending the FHA term out to 40 years
- Cutting the interest rate by up to half a point
- Rolling missed payments into a balloon at the end of the term
HUD is paying servicers to do this because it does not want the losses. Humphries’ read is that without the volume of modifications happening now, foreclosure counts would be materially higher than what the public numbers show.
The borrowers getting modified skew toward those who bought at the 2021 to early 2022 peak with thin equity. That is a narrow slice of all outstanding mortgages, and it tells you which vintage of purchase to screen for rather than expecting a broad foreclosure wave.
How to Set Client and Deal Expectations in a 6% Market
Ask the payment question first, before anyone is under contract. Humphries opens every conversation with a buyer or investor by asking what monthly payment they expect, then corrects it immediately if it is wrong.
The alternative is the deal-killer: a property under contract, a lender calling with a $3,000 payment against a $2,200 expectation, and the transaction falling apart mid-stream. Popping that bubble on day one costs you an awkward five minutes. Popping it at closing costs you the deal, the earnest money timeline and the relationship.
The encouraging part is that those conversations have gotten easier. Two years ago, expectations were badly misaligned with reality. Now most buyers walk in with a number close to what the market will actually produce, which is a large part of why transaction volume is holding up at 6%.
On the investor side, demand sits primarily in DSCR alongside conventional, FHA and VA. Humphries has also worked the VA assumption angle himself to acquire investment property — taking over an existing low-rate VA note rather than originating new. It is a narrow lane with real constraints, but on the right property it beats anything available at today’s origination rates.
If you wholesale or flip, none of this is somebody else’s problem. Your inventory ultimately clears through the retail market, and it clears through buyers who finance. When a retail payment moves $200 a month, your end buyer’s underwriting moves with it, and so does the price your flipper will pay you. Track the mortgage side even if you never touch a loan application.
Frequently asked questions
Will mortgage rates drop in 2026, and how low could they go?
The likely path is a continued general decline with visible peaks and valleys, potentially reaching 5.5% by year end on well-qualified conventional loans. A realistic band is wider than that — touching 6.5% at one point and 5.25% at another is consistent with how the last two years have behaved.
Rates have already fallen roughly two points from the October 2023 peak near 8%, driven by easing inflation and tightening spreads between mortgage-backed securities and the 10-year Treasury. Underwriting deals to a specific bottom is the wrong approach; underwrite to today’s rate and treat any further decline as upside.
Why do mortgage rates jump a quarter point on a single headline?
Because mortgage rates are set by bond pricing, and bond investors reprice instantly on expected changes in supply and demand for mortgage-backed securities. When the FHFA announced that Fannie Mae and Freddie Mac would deploy roughly $250 billion buying their own MBS, rates dropped a quarter point on the announcement alone — some borrowers locked at 5.99% — before drifting back near 6%.
Geopolitical events move them the other way just as fast. The Iran operation pushed rates up about a quarter point. Those moves usually retrace once conditions stabilize, which is why chasing headlines is a poor locking strategy.
Is the rate lock-in effect over?
Not eliminated, but meaningfully eased. The number of outstanding mortgages above 6% recently crossed over the number below 3% for the first time, so the pool of owners sitting on cheap money is shrinking as a share of the market.
Two forces are driving the rest. Move-up buyers with growing families and downsizers with empty houses are trading rate for fit. And rising carrying costs — Texas property taxes, insurance increases across Florida, Louisiana, Georgia and Texas — are forcing sales regardless of what the note says.
Are foreclosures about to spike like 2008?
The conditions are different. Conventional, VA and USDA loans were tightly underwritten and most borrowers hold real equity, so few have any incentive to walk away. Defaults on that paper remain low.
FHA is where stress is showing, and defaults there are ticking up from a structurally higher baseline. But servicers are curing most of them with modifications — extending terms to 40 years, cutting rates by up to half a point, or ballooning missed payments to the end of the loan — with HUD incentivizing the practice. Published foreclosure counts would likely be materially higher without that activity.
Which regional housing markets have too much inventory right now?
The COVID-boom Sunbelt markets. Austin, Tampa and Nashville are all running well above pre-pandemic listing counts, with Tennessee statewide roughly 34% above. Those markets show longer days on market, more seller concessions and downward price pressure.
The Northeast and Midwest are the opposite — largely below pre-pandemic inventory, with faster appreciation and tighter conditions. The Sunbelt overhang traces back to builder starts from 2020 through 2023 finally delivering, and builders are now pulling back in those same markets.
The bottom line
Stop underwriting to a rate you hope to see and start underwriting to the market you are actually in: pull your local inventory count against pre-pandemic levels, reprice your insurance and tax assumptions with current quotes rather than old ones, and confirm your end buyer’s payment expectation before you put a property under contract.
