MBA Chief Economist Offers 2026 Mortgage Market Forecast at MSR Webinar

A softer labor market, stubborn inflation and heightened rate volatility will shape the residential mortgage market in 2026, according to Mike Fratantoni, Chief Economist for the Mortgage Bankers Association (MBA). Fratantoni shared his latest forecast at SitusAMC’s Monthly Snapshot MSR Webinar on January 22, offering a detailed assessment of macroeconomic trends, housing fundamentals and implications for originators and servicers.  

MBA anticipates a $2.2 trillion mortgage market in 2026, up 7% from 2025, with unit volume rising faster than dollar volume due to stagnant home prices. Meanwhile, aggregate home equity stands at an estimated $35 trillion to $36 trillion, supporting opportunities in cash-out refinancing and home equity lending. But the market faces economic uncertainty and competitive pressures across origination and servicing. 

A Softening Job Market, Sticky Inflation  

The labor market shows clear signs of deceleration following several years of resilience, Fratantoni said. From April through the end of 2025, the economy produced essentially no net job growth, a sharp contrast from 2024 and the post-pandemic recovery period. MBA expects the unemployment rate to average about 4.6% in 2026. 

“We’re seeing a very slow hiring rate and a very low quit rate,” Fratantoni said, describing a cautious attitude by both employers and workers. A sluggish job market could increase pressure on servicers as more borrowers struggle to make payments. This is complicated by an upward trend in negative equity, pointing to a possible rise in delinquencies, short sales and foreclosures if home prices continue to soften in select markets. 

Inflation continues to complicate the outlook. Even accounting for data distortions in the government shutdown, headline inflation remains elevated, hovering near 2.7% at year-end. “The Fed risks losing credibility if it keeps targeting 2% inflation and consistently lands closer to 3%,” Fratantoni said.  

MBA expects inflation to peak north of 3% in the first half of 2026, driven in part by tariff-related pressures that are still working their way through the economy. Under current policy assumptions, inflation is not expected to return sustainably to the Fed’s 2% target until late 2027 or early 2028. 

One More Rate Cut, Persistent Volatility 

MBA has revised the timing of what it expects to be the final interest rate cut of the cycle. Rather than March, Fratantoni now anticipates a single basis-point cut around mid-2026, reflecting a growing consensus within the Federal Open Market Committee to remain patient. “They’ve already cut 75 basis points, and with sticky inflation and a job market that isn’t falling apart, there’s no rush to move,” he noted.  

The yield curve has continued to steepen, with the spread between short- and long-term rates reaching roughly 65 to 70 basis points. While MBA does not expect significant movement in the 10-Year Treasury, mounting Treasury issuance and inflation risk are likely to keep long-term rates elevated. 

Mortgage rates, meanwhile, are expected to remain volatile. Fratantoni pointed to the recent announcement of $200 billion in potential agency MBS purchases, which tightened mortgage spreads by roughly 20 basis points in the short-term. “We don’t know if or how these purchases will happen, but even the announcement added volatility,” he said. “That’s going to be a defining feature of the rate environment.”  

That volatility is producing brief bursts of refinance activity rather than sustained waves, as in mid-January, when rates dipped to the lowest level in three years on the possible agency purchase news. “This is going to be the nature of the beast,” Fratantoni explained. “Short refi boomlets when rates hit the low end of the trading range, and then they shut off just as quickly.” While a move to the mid-5% range would unlock significant refinance potential, MBA views that outcome as a lower-probability scenario rather than its base case. 

Supply Changes and the Purchase Market Equation 

One of the most meaningful shifts from prior years is the availability of housing inventory in much of the country, as the supply constraints that characterized the market in 2023 and 2024 has subsided. Bidding wars have waned. Demographic shifts – including the oldest of the Baby Boomers turning 80 this year – could fuel more housing turnover.  

MBA expects new and existing home sales combined to grow 5% to 7% this year, though recovery will be uneven. Inventory in parts of the South and West now exceeds pre-pandemic norms, leading to price declines in markets such as Florida, Texas, Arizona and Colorado.  

Builders have responded with incentives such as buydowns, price cuts and concessions, pressuring existing homeowners to follow suit. In contrast, supply remains relatively scarce in the Northeast and Midwest, and prices have been more stable. 

View the recording of the presentation here, and download the slides here. To learn more about on SitusAMC’s Valuation, Analytics and Hedging services, visit our website.