As we head into 2026, many homeowners and homebuyers are asking the same questions:

Where is the economy going?
Will mortgage rates come down?
What will happen to home prices?
And is this finally the year opportunity returns to the housing market?

At Oak Leaf Community Mortgage powered by North Shore Trust & Savings, we believe the best decisions aren’t made on headlines—they’re made with perspective. That’s why we review the data that actually drives mortgage rates and housing conditions, and we share our forecast to help our clients in Illinois and Wisconsin plan confidently.

Below is our 2026 outlook, including what we believe will shape inflation, the labor market, the Federal Reserve, mortgage rates, and the real estate market in the year ahead.

2026 Interior

Step One: Why Inflation Still Matters (And Why It May Be Overstated)

Inflation remains one of the most important drivers of interest rates—especially long-term rates like mortgages.

The Federal Reserve’s preferred measure of inflation is Personal Consumption Expenditures (PCE). Recently, both headline and core PCE have been running around 2.8%. While that is still above the Fed’s 2% target, we believe the inflation picture is not as hot as the official numbers suggest.

One major reason inflation appears elevated is the delay in how shelter costs are measured.

Housing and rent inflation is often reported with a long lag because the data is sampled in portions and reflects leases signed months earlier. Meanwhile, several real-time indicators have shown that rent growth has been moderating, which should gradually reduce inflation pressure over time.

As shelter trends lower, it becomes easier for inflation to move closer to the Fed’s target—and that supports lower interest rates.

Step Two: The Labor Market Is Softening

The labor market plays a crucial role in the Fed’s decision-making. Even if inflation is trending down, the Fed typically wants to avoid cutting rates unless there is clear evidence the economy is slowing.

In our view, that evidence has been building.

A number of labor indicators have shown weakness, including:

  • Fewer job openings over time
  • Slower private payroll growth
  • Job data revisions that reduce earlier reported strength

In short: it appears harder for workers to find new jobs once they’re let go, and the data suggests the labor market could be weaker than most forecasts currently assume.

Our outlook: unemployment could rise further

We believe unemployment could trend toward 4.8% in 2026, and potentially higher if the economy slows faster than expected.

Step Three: The Federal Reserve May Have to Cut More Than Expected

Most mainstream forecasts expect a very limited number of Fed rate cuts in 2026.

However, if inflation continues to ease while the labor market softens, the Fed may become more focused on protecting employment and maintaining economic stability.

Based on the combination of cooling inflation and labor market weakness, our forecast calls for three quarter-point cuts, bringing the Fed Funds rate to approximately:

2.875% by the end of 2026

That would represent a meaningful shift toward a more supportive rate environment—especially compared to the tightening cycle we’ve experienced over the last few years.

Mortgage Rates in 2026: Why We’re More Optimistic Than Most

Mortgage rates are impacted by far more than the Fed Funds rate alone. Long-term rates depend heavily on the bond market and the relationship between mortgage rates and Treasury yields.

Rates Interior
  1. The 10-year Treasury yield
  2. The mortgage rate spread (the difference between mortgage rates and the 10-year Treasury)

Our mortgage rate low target: 5.7%

For 2026, our forecast low for 30-year fixed mortgage rates is: 5.7%

And if conditions improve further—particularly if inflation cools and spreads narrow more than expected—mortgage rates could move even lower, potentially near 5.5%.

Many industry forecasts remain above 6% for 2026. We’re comfortable being more optimistic because we believe the data supports it—and because even modest declines in rates can create meaningful changes in affordability and consumer confidence.

When rates drop, the refinance conversation comes back quickly.

Even a reduction of 0.75% can re-open refinance opportunities for a large percentage of homeowners—especially those who purchased or refinanced when rates were at their recent highs.

This can mean:

  • Lower monthly payments
  • Reduced total interest over time
  • Debt consolidation strategies (in certain situations)
  • Opportunities to restructure loan terms more strategically

If our forecast plays out, 2026 could offer a real refinance “window” that many homeowners have been waiting for.

Even with affordability challenges, housing remains a supply-and-demand market.

Many buyers delayed home purchases over the last two years due to high rates. That does not eliminate demand—it often creates pent-up demand that returns once payments become more manageable.

At the same time, builders have limited how quickly supply can increase, which can support prices in many markets.

Our home price appreciation forecast: 3.5%

Nationally, we are forecasting home prices to rise approximately: 3.5% in 2026

And as always, local market performance may vary. Some areas may outpace national averages, while others may remain flat.

Here are the key projections we’re tracking for 2026:

  • Unemployment Rate: ~4.8%
  • Core PCE Inflation: ~2.5%
  • Fed Funds Rate: ~2.875%
  • Mortgage Rate Low: ~5.7%
  • Home Price Appreciation: ~3.5%

The Most Important Forecast: Your Opportunity

Forecasts are helpful, but the real value is in what they help you do.

Whether you’re:

  • Thinking about buying your first home
  • Considering a move-up or downsizing plan
  • Exploring refinance options
  • Looking to use home equity strategically

…the best plan is a personalized one, built around your goals, timeline, and financial picture.

At Oak Leaf Community Mortgage, we’re committed to being a lender for life—helping you make confident decisions in any market.

Want to Talk Through Your 2026 Plan?

If you’d like a custom strategy based on your home value, loan type, current rate, and future plans, our oficerowie kredytowi are happy to help.

Let’s take a look at your options and build a plan for 2026—together.

Important Disclosure: The economic and housing market forecasts referenced in this blog are derived from data and research published by MBSHighway.com. The opinions, estimates and projections contained in this report are those of Oak Leaf Community Mortgage as of the date of this report and are subject to change without notice. Oak Leaf Community Mortgage endeavors to ensure that the contents have been compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete. However, Oak Leaf Community Mortgage makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents.

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Ta wiadomość została napisana przez Joe LaGiglia Oak Leaf Community Mortgage, NMLS #703971. Równy pożyczkodawca mieszkaniowy. Członek FDIC.

Nasz ekspert, Joe LaGiglia, pracuje w Downtown Plainfield jako Senior Mortgage Loan Originator w Oak Leaf Community Mortgage, powered by North Shore Trust and Savings (NMLS #438265). Dzięki ogólnokrajowej licencji, wiedza Joe jest ogromna i nieoceniona. Aby zagłębić się w temat lub nawiązać bezpośredni kontakt z Joe, odwiedź jego stronę strona bio tutaj lub zadzwoń lub wyślij SMS pod numer 630-936-3242 (NMLS #703971).