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US mortgage rates may stay above 7% through 2027 as inflation, government borrowing and AI spending raise costs
US mortgage rates may stay above 7% through 2027 as inflation, government borrowing and AI spending push up borrowing costs, making home loans more expensive.
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US mortgage rates may remain above 7% through 2027. Major housing groups expect mortgage rates to stay high for an extended period, making home loans expensive for Americans who want to buy houses. Fannie Mae forecasts that mortgage rates could average 7.5% in 2027, while the Mortgage Bankers Association expects rates to remain above 7% that year.
The 10-year US Treasury yield plays a major role in mortgage rates. Mortgage rates generally move in line with the yield on 10-year Treasury bonds. High inflation is one of the main reasons borrowing costs could stay elevated. When inflation remains high, investors usually demand higher returns on long-term bonds, according to CNBC.
High inflation may keep mortgage rates above 7%
US inflation has remained above the Federal Reserve's target for years. However, the index has not recorded inflation below that target since February 2021, according to the Federal Reserve's data. Persistent inflation could make it harder for long-term borrowing costs to fall, cited by CNBC.
Heavy US government borrowing is adding pressure to borrowing costs. The federal government is borrowing large amounts of money.
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The artificial intelligence boom is increasing demand for money. The rapid growth of AI is leading to huge private investments in data centres, electricity generation and other infrastructure, according to CNBC.
Fed policy and a weaker economy could lower rates
The economy has changed from a period of plentiful capital to one of greater competition for funds. Selma Hepp said the 2010s had more available capital than investment opportunities.
Low inflation, abundant savings and relatively weak demand for money helped keep mortgage rates low during that period. Today, heavy government borrowing and large investments in AI infrastructure are creating greater competition for capital, according to CNBC.
The Fed is no longer providing the same level of support to the mortgage market. The central bank has stepped away from actively buying mortgage-backed securities, removing one source of support that helped keep borrowing costs low during the pandemic.
A weaker economy could also lead to lower mortgage rates. If economic conditions weaken, investors may move their money into US Treasury bonds because they are considered relatively safe investments.
