High inflation and a weak job market will be the big storyline in 2026.
Mortgage-minded consumers buying and refinancing will be the big winners as rates are going to dip into the 5% range.
Those are my big predictions. Come and see what else my crystal ball says.
1) Freddie Mac mortgage rates are going to average 5.5% while local rates will average 5%. Local rates are always lower than national rates by about one-half to three-quarters percent because the California loan sizes are larger (bigger dollar profit for lenders), and California lender competition is fierce.
2) The Federal Reserve board of governors will cut short-term interest rates three different times in 2026, one-quarter percent for each cut. The prime rate will end the year at 6%. It’s 6.75% today.
3) The 50-year Fannie/Freddie mortgage with an interest-only component for the first 10 years will come to fruition in 2026. We already have a 40-year mortgage but not from the mortgage giants.
4) The portable mortgage will not happen. The mortgage lending system would require a lot of hard wiring changes. Plus, the mortgage folks and their lobbyists won’t stand for it because it will drastically restrict the need for newly originated mortgages and the profits that go along with that.
5) Mortgage volume will jump 20% to $2.4 trillion. That’s still less than half of the $4.5 trillion origination volume during the Covid days of 2021.
6) Unemployment will tick up to 4.9%. It’s already at 4.6%, the highest since 2021. Job losses are due to President Donald Trump’s tariff tantrums, which are too tough for businesses to plan as he often changes his mind. And the artificial intelligence explosion means businesses will need a smaller head count.
7) Home shoppers and home sellers are going to see the introduction of AI. Buyers will be able to learn of the best places to live based on personal criteria input. Sellers and buyers will be able to search for real estate agents based on those inputs. For example, which agent has sold the most homes in X neighborhood for the past two years. That might be a great match for a seller or buyer because that agent knows the local landscape.
8) Southern California median home prices will be flat. Lower mortgage rates mean more buying power, which also pushes up prices. But the counterbalance will be a slower economy with increasing joblessness and reduced consumer confidence.
9) Local home listings will jump 20% compared with 2025 as more folks seek to move thanks to lower mortgage rates. And more folks will have to sell because of sustained unemployment. Home sales volume will increase 15% from 2025 as more home choices will be on the market with cheaper mortgage financing as another incentive.
10) Congress will pass a law increasing or eliminating the capital gains tax exemption of $250,000 for a single filer or $500,000 for a married couple.
2025 predictions
1) Freddie Mac mortgage rates did not drop below 6% as I predicted. Rates did drop to the low-6% range though. Locally, rates did drop into the 5’s. (So, my prediction was incorrect.)
2) The Fed did cut short-term interest rates three times, and one-quarter percent drops each time. (Prediction: correct)
3) The capital gains tax exemption did not double. Marjory Taylor Greene did introduce the “No Tax on Home Sales Act,” eliminating federal capital gains taxes on the sale of primary residences. (Prediction: incorrect)
4) Southern California’s median home price increased 1%, according to Attom Data Solutions, not the 10% increase I predicted (Prediction: incorrect)
5) Southern California home listings increased by 10% in 2025, according to Steven Thomas, chief economist at Reports on Housing. I predicted listings would increase 20%. (Prediction: incorrect)
6) Trump is making moves to privatize mortgage giants Fannie Mae and Freddie Mac. (Prediction: correct)
7) Mortgage delinquencies did spike 10% in respect to FHA and VA mortgages. Overall delinquencies increased from 3.2% to 3.9%. (correct)
8) Mortgage volume increased to roughly $2 trillion. I predicted $2.5 trillion. (Prediction: incorrect)
Freddie Mac rates news
The 30-year fixed rate averaged 6.21%, 1 basis point lower than last week. The 15-year fixed rate averaged 5.47%, 7 basis points lower than last week.
The Mortgage Bankers Association reported a 3.8% mortgage application decrease compared with one week ago.
Bottom line: Assuming a borrower gets an average 30-year fixed rate on a conforming $832,750 loan, last year’s payment was $279 more than this week’s payment of $5,106.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.375%, a 15-year conventional at 4.99%, a 30-year conventional at 5.75%, a 15-year conventional high balance at 5.625% ($832,751 to $1,249,125 in LA and OC and $832,751 to $1,104,000 in San Diego), a 30-year high balance conventional at 6.125% and a jumbo 30-year fixed at 5.875%.
Eye-catcher loan program of the week: A 30-year mortgage, fixed for the first five years at 5.375% with 30% down payment and 1 point cost.
Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com.