MBA chief economist says mortgage rates, inflation will stay elevated through 2026

Mortgage rates and inflation are expected to remain elevated through 2026 as pressures tied to geopolitical tensions keep Federal Reserve rate cuts on hold. That’s according to Mike Fratantoni, chief economist and senior vice president of research and business development at the Mortgage Bankers Association (MBA).

Speaking during an economic outlook session at the MBA’s National Advocacy Conference on Tuesday, Fratantoni said the U.S. economy is marked by “uncertainty along so many dimensions,” with a murky job market and renewed inflation risks shaping the outlook for interest rates and housing.

The labor market, he said, is “neither terribly strong nor terribly weak.” Monthly job growth averaged about 15,000 in 2025 and has risen to roughly 70,000 so far in 2026, although the data remains volatile and subject to revision. The unemployment rate is hovering around 4.3% as of March, with signs of softening.

At the same time, rising oil prices linked to global conflict are pushing inflation higher than previously expected. As a result, Fratantoni said that contrary to MBA’s original forecast of 3.2% inflation, he sees a figure closer to 4% by the end of 2026.

“That’s an inflation event for the United States,” Fratantoni said about the war in Iran, adding that rates could move higher if geopolitical risks intensify.

The MBA also removed expectations for any Federal Reserve rate cuts this year. The federal funds rate is expected to remain in its current range of roughly 3.5% to 3.75%, with little movement anticipated into 2027. Longer-term rates are also expected to hold steady.

On housing supply, Fratantoni pointed to declining effective rents in many markets, especially across the Sun Belt. Slowing population growth, lower fertility rates and tighter immigration are all curbing demand just as supply has increased, he said.

Affordability, however, remains strained. Wage growth is gradually improving affordability, but recent borrowers are more vulnerable and the market is risky, Fratantoni said.

Almost 17% of 2024 vintage Federal Housing Administration (FHA) loans and more than 25% of U.S. Department of Veterans Affairs (VA) loans are now underwater, Fratantoni added, compared with very strong equity positions for borrowers who bought in earlier years.

Delinquencies tell a similar split story. Conventional loan delinquencies are “about as low as they’ve ever been,” he said, while FHA delinquencies have climbed to about 11.5%, driven by changes to loss mitigation and genuine credit deterioration.

When asked at the end of his session whether the war, inflation or debt would have a bigger impact on mortgage rates, Fratantoni answered that the war would have a great impact over the next six months.

“It’s all about oil prices,” he said. “As for inflation, what we showed over the past five years is that this economy is so much more susceptible to inflation than anybody would have guessed. … Think back to the Silicon Valley Bank experience in 2023. People have re-remembered that inflation can jump quickly, and again, that immediately shows up in longer-term yields.”