Mortgage rates drop below 7.5% ahead of expected Fed pause

Mortgagerates fell for a third straight week ahead of the next meeting for FederalReserve policymakers, but they remain well above 7%, which is likely to keephousing demand subdued for the rest of 2026.

AtHousingWire‘s Mortgage Rates Center on Tuesday, rates for 30-year conformingloans averaged 7.38%, down 14 basis points from one week ago and aquarter-point lower than their recent peak in mid-October. Rates for 30-yearloans through the Federal Housing Administration (FHA) were up 6 bps in thepast week, averaging 7.24% on Tuesday, while rates for 30-year jumbo loans weredown 7 bps to 7.69%.

“Thehousing market continues to face significant headwinds as elevated mortgagerates and affordability pressures keep many prospective buyers on thesidelines,” Bob Broeksmit, president and CEO of the Mortgage BankersAssociation (MBA), said in a statement. “Despite a small decline in rates lastweek, mortgage applications fell for the seventh consecutive week, withpurchase activity 18% below last year’s pace.”

Positivenews for consumers and housing professionals is expected to arrive in the formof a Fed rate pause. After hiking the benchmark rate by 25 basis points inSeptember, members of the Federal Open Market Committee (FOMC) are likely tokeep rates unchanged on Wednesday.

OnTuesday, the CME Group‘s FedWatch tool showed that 90.6% of interest ratetraders predict no change, up from 84.5% one week ago and 35.8% one month ago.Optimism for a rate pause has grown in the wake of last month’s tepid jobsreport from the U.S. Bureau of Labor Statistics, even as Consumer Price Index(CPI) data showed hotter inflation of 3.7% annually.

“TheFed may deliver a Halloween treat this week with a rate pause, but there couldstill be a trick in store. Rising inflation expectations could prompt anotherhike or a signal that more rate hikes are coming, keeping mortgage rateselevated and leaving homebuyers waiting longer for relief,” Sam Williamson,senior economist at First American, said in a statement.

“Whetherthe Fed hikes or holds this month, homebuyers shouldn’t expect a big change inmortgage rates,” he added. “With another hike widely expected in December andfurther increases possible next year, borrowing costs are likely to remainelevated, keeping many buyers and sellers on the sidelines. But not everyonehas the luxury of waiting. New jobs, growing families and other life eventswill keep some buyers moving forward, even as higher rates delay moves that canwait.”

Evenif the Fed holds, policy is moving elsewhere

Homesales and mortgage origination volumes in 2026 have been hampered by highermortgage rates and other affordability factors, with the MBA and other industryleaders forecasting tougher conditions ahead in 2027.

TheTrump administration took action last week through an executive order, whichtargets four specific areas of housing and mortgage costs.

TheFederal Housing Finance Agency (FHFA) has been directed to create a pilotprogram that would proactively cancel mortgage insurance premiums onconventional loans backed by Fannie Mae and Freddie Mac once they drop belowcertain loan-to-value ratios. But unlike a draft version of the order, thefinal version signed by President Donald Trump applies only to “mortgages madeafter the establishment of the pilot program” rather than being retroactive.

“Mostof this is a long play. People will see the benefit of the mortgage insurancepiece years from now,” said Jason Madiedo, CEO of Las Vegas-based mortgagelender SimplyPMG. “Today, property values are under pressure, and that’s themore immediate problem.”

Trump’sorder also establishes a task force on manufactured housing innovation, withthe goal of increasing the quality and lowering the cost of factory-builthomes. Additionally, the order expands the FHFA’s title insurance waiver pilotinto a permanent program for certain refinances, and it directs the U.S.Department of Agriculture (USDA) and Department of Veterans Affairs (VA) tolower rates on single-family home loans.

“Thetitle insurance piece is real, but it’s aimed at the wrong part of theproblem,” Madiedo said. “Nobody refinances to save $800 on title. Peoplerefinance for one of two reasons: to lower a payment, which is rate-driven, orto pull cash out. Eight hundred dollars doesn’t change either calculation.

“Ifthe goal was to move the needle on refinancing, the lever was the loan-levelprice adjustment on cash-out, which FHFA also sets. Removing that would havemade a far bigger difference than the closing cost.”

‘Massiveconundrum’ for monetary policy

MelissaCohn, regional vice president of William Raveis Mortgage, offered a bluntassessment of current housing market conditions. She said that the Fed is“quite likely” to “do nothing” this week because of the upcoming midtermelections and the “massive conundrum” faced by policymakers as they battlehigher oil prices and weaker economic data.

“Ithink that if oil prices continue to soar, then the Fed should be raising ratesin December,” Cohn said. “The housing market is imploding. Mortgage rates areat a point where people just can’t afford to buy, and new-home sales activityis diminishing each week.

“Youkeep reading about how the real estate market’s going into a deep freeze. Theprices haven’t dropped enough to compensate for the higher interest rates;mortgage rates are higher than they were earlier this year, and it’s impactingaffordability.”

With2026 nearing its end and lenders looking for new ways to generate business in2027, companies will be rewarded through preparation for multiple scenariosrather than trying to make predictions, according to Tanya Bates, anOklahoma-based regional director of home loans at BOK Financial.

“Thebiggest surprise of 2026 was how quickly the expected recovery disappeared onceinflation and long-term rates moved against the consumer. This was a reminderthat demand does not automatically become closed transactions when the monthlypayment no longer works,” Bates said.

“For2027, I would watch inflation and the 10-year Treasury before I watch the nextFed headline. We need inflation relief that is durable enough to bring downlong-term borrowing costs with a major deterioration in household employment,”she added. “… The 2027 affordability conversation cannot stop at the mortgagerate. Taxes, insurance, maintenance and homeowners’ association costsincreasingly determine whether a payment remains sustainable after closing.”

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