With mortgage rates easing in late 2025,2 potential homebuyers may be wondering if now is finally the right time to get into the market; however, several uncertainties remain. Will rates continue to decline? Will the U.S. housing shortage ease further? And after a period of rapid price appreciation, will home prices continue to cool?3
The good news: Morgan Stanley strategists anticipate that mortgage rates could decline somewhat in 2026, particularly in the first half, and home prices may rise only slightly as supply and demand balance out. This could motivate sellers and buyers alike, although affordability remains challenged.1
If you’re considering entering the market this year, here’s what you should know.
Why Are Mortgage Rates Still So High?
With inflation cooling from its 2022 peak, the Federal Reserve reduced its benchmark rate by a full percentage point in 2024 and 75 basis points in 2025.4 Many people initially expected rate cuts to help lower mortgage costs, as they did early in the pandemic in 2020, but that hasn’t necessarily been the case recently.
With the more influential 10-year Treasury yield still elevated and fluctuating throughout 2025,5 the average 30-year fixed mortgage rate only eased to around 6.20% late in that year.2 That’s meaningfully below the inflation-fueled peak mortgage rate of 7.80% in October 2023, but still far above levels before and early in the pandemic.
Will Mortgage Rates Go Down in 2025 and 2026?
Morgan Stanley strategists forecast that a decline in the benchmark 10-year Treasury yield to about 3.75% by mid-2026 could help lower the 30-year fixed mortgage rate to around 5.50%–5.75%; however, the strategists expect mortgage rates to then rise again in the second half of 2026 and in 2027.1
The potential rate declines could translate to meaningful improvements in housing affordability. For example, for a $1 million home, the monthly cost today could be $4,900 at a rate of 6.20%, versus $4,542 at 5.50%—a difference of roughly $358 per month.6,7
Will Home Prices Rise in 2026 and 2027?
With housing supply and demand likely balancing out, Morgan Stanley strategists expect prices to remain range-bound—increasing just 2% in 2026 and 3% in 2027.1 Still, affordability remains a concern. While price appreciation slowed significantly in 2025, average prices are still up about 30% since early 2020,3 putting homes out of reach for many buyers.
With mortgage rates also high by recent historical standards, many homeowners who already secured lower rates still have a strong incentive to hold onto their current home, creating a “lock-in effect” that has constrained housing supply and supported higher prices.
Despite this lock-in effect, however, for-sale inventories rose in 2025 as rates fell. Although the market remains challenged, further mortgage rate declines could lead to more supply growth and improved affordability.1 This could spur new housing demand and sales growth. In fact, the strategists see a modest increase in sales in 2026 and a bigger rise in 2027.1
Is Now the Right Time to Get Back in the Housing Market?
Ultimately, whether now is the right time to buy or sell a home can be just as much a personal decision as it is an economic one. For example, a young couple starting their family may be willing to pay a premium to get into a specific school district, while a retiree may be ready to buy their dream vacation home while they can enjoy it. For many of today’s buyers, there is also the hope that they can refinance down the road to lower their costs, making it an easier choice to buy at a higher rate now.
Whatever your circumstance, your Morgan Stanley Financial Advisor can help you understand your financing options and evaluate how today’s mortgage rates and home prices could affect your overall financial plan.
