Are lower mortgage rates increasing housing demand for 2026?

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Are lower mortgage rates increasing housing demand for 2026?

 

The harsh winter storm that recently hit much of the country took its toll on the mortgage market in the week that followed. Potential buyers stayed home, and mortgage rates didn’t move enough to spark refinance demand.

Total mortgage application volume dropped 8.9% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Last week’s results included an adjustment for the Martin Luther King Jr. holiday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $832,750 or less, decreased to 6.21% from 6.24%, with points increasing to 0.56 from 0.55, including the origination fee, for loans with a 20% down payment.

Despite the drop, applications to refinance a home loan fell 5% for the week but were still 117% higher than the same week one year ago, when rates were over 7%. The refinance share of mortgage activity increased to 57.1% of total applications from 56.2% the previous week.

Are lower mortgage rates increasing housing demand for 2026?

• Increased Buyer Activity: The lower rates have motivated many would-be buyers who were previously sidelined to re-enter the market, leading to a notable uptick in buyer interest and an increase in sales. Purchase mortgage applications rose 16% week over week and 13% year over year in the first week of 2026.
• Affordability Improves, But Challenges Remain: While the lower rates reduce monthly payments (a 1% drop can save hundreds per month), the overall affordability crisis persists as tight inventory keeps upward pressure on home prices. Home prices are expected to rise modestly, with forecasts generally in the 1% to 4% range for the year.
• Market Rebalancing: The market is shifting toward a more balanced environment between buyers and sellers, moving away from the extreme seller’s market of the pandemic years. Inventory levels are rising year over year, offering more choices for consumers, and price growth is slowing to a more sustainable pace.
• Regional Variation: The market recalibration is not uniform across the U.S.. The Northeast and Midwest are expected to see continued strong demand and price growth due to chronically tight inventory, while some markets in the South and West may experience a cooling as supply catches up. 

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