Zillow forecasts mortgage rate moderation
Zillow predicts mortgage rates could moderate by mid-year, potentially easing affordability pressures, but timing depends on the Federal Reserve and economic uncertainty.
Mortgage rates are influenced by various factors, including inflation, Federal Reserve policies, and overall economic growth. Unexpected inflation increases, changes in Federal Reserve policy, or an economic slowdown could shift mortgage rate trends. Conversely, cooling inflation and a weakening job market could lead to rate decreases. The Federal Reserve's decisions on the federal funds rate indirectly influence mortgage rates. While the Fed doesn't directly set mortgage rates, its policies and market expectations strongly influence them. For example, the Federal Reserve decided to hold rates steady in January 2026 after three consecutive rate cuts in 2025. Geopolitical events can also impact mortgage rates. Escalating tensions in the Middle East, for instance, have contributed to recent rate increases. Redfin notes that Middle East tensions, and not the jobs report, are now primarily driving mortgage-rate volatility. Zillow's forecast also considers home values and income growth. They anticipate slow but steady home value growth, rising incomes, and falling mortgage rates will contribute to improved affordability. A separate report from Zillow notes that a mortgage payment on a typical home is expected to be affordable in 20 major metropolitan areas by the end of 2026.
