If Interest Rates Have Dropped, Why Are Mortgage Rates So High? Investors Ask Natalie.

Multigenerational housing is on the rise. 18% of young adults age 25-34 are living with a parent (source: Pew).

If Interest Rates Have Dropped, Why Are Mortgage Rates So High? Investors Ask Natalie.
 
Dear Natalie:
Why are mortgage rates still so high? Shouldn’t borrowing rates go down now that the Federal Reserve Board has been cutting rates? What’s going on? Signed, Concerned Homeowner
 
Dear Concerned:
 
I feel your pain. If you have any housing challenges, please feel free to email [email protected]. Whether you are concerned about your home equity, the high cost of housing, downsizing, upsizing or monetizing, we have resources. Hoping for a lower Fed Fund rate is not a magic pill for this frozen housing market for some of the reasons I outline below. However, there are ways to fix our individual housing challenges (and there are so many challenges today). The more specific you are with me about the problem (which can be kept anonymous, as this blog is), the easier it will be to point you to the solutions. I’ve already written extensively on this topic in my books and blogs and have covered housing and real estate for over two decades. (We warned of the housing bubble in 2005 – before it popped… The high for housing then was 2006.)
 
Housing Solutions
Part of my own personal story is that I was able to launch my financial freedom initiative in 2002 because I teamed up with another single mother, got a better place in a better neighborhood for a savings that put thousands of dollars annually back in my own budget. CoAbode estimates that each household can save $19,000 or more by teaming up. You also get bonus personal free time by having another adult in the home.
 
There is an entire section on real estate in The ABCs of Money, 6th edition, including many case studies that illustrate the solutions to embrace and the money pits to avoid. Be sure to read the 10-Point Home Buyer checklist. If you’d like me to host a free Housing Solutions videoconference, email [email protected] with Housing Solutions Videocon in the subject line. Be sure that you are subscribed to my YouTube and Substack channels, so that you are notified when my podcasts are published.
 
Mortgage Rates Tend to be 2% Higher than the 10-year Treasury
Mortgages are long-term contracts. That means that banks are factoring in more than just the Fed Fund Rate (which is a short-term borrowing rate used by the banking industry). Over the past decades, mortgage rates tend to be about 3% higher than the Fed Fund Rate. Economists note that the 30-year fixed mortgage rate is more closely aligned with the 10-year Treasury yield (plus 1.5-2.0%) than the Fed Fund rate. The 10-year Treasury yield on Jan. 23, 2026, was 4.24%, while the 30-year fixed rate mortgage was 6.09%.

At 3.5-3.75%, the current Fed Fund Rate is almost 2% below its peak on July 27, 2023 of 5.25-5.50%. The average rate on a 30-year fixed mortgage is also down almost 2% from the high in October of 2023 of 7.8%, at 6.09%.

In other words, mortgage rates have dropped from their peak in 2023. What I’m sensing in your question is a hope that rates will magically plunge below 4% again – something that is not predicted to happen.
 
2026 Forecast for Mortgage Interest Rates
“Our forecast is for mortgage rates to stay within a narrow range over the next few years, between 6 and 6.5 percent. This forecast becomes more likely as the Fed reaches the end of their cutting cycle next year,” according to the MBA’s December 2025 Economic and Mortgage Finance forecasts.
 
The Federal Reserve Board is expected to pause rates at the Jan. 28, 2026, meeting. There is only one rate cut forecasted for 2026, and one more in 2027. The longer run expectation is 3.0%. Of course, expectations can change for a multitude of reasons. If inflation rises, rates should increase. (The Fed Fund Rate during the Great Inflation in 1980 soared to 20%!) If unemployment rises, rates should fall. If the Federal Reserve Board is no longer independent, all bets are off.

​Low-Rate Pandemic Fixed Mortgages
One of the challenges for the current market is that many homeowners were able to lock in fixed mortgages at historic lows during the pandemic – some at rates that are half of what a new mortgage would be. As the below chart indicates, while mortgage interest rates are much higher than they were during the pandemic and in the wake of the Financial Crisis of 2008, on a historic basis, they are still rather low.

That means that Boomers can’t afford to downsize, even though they are in retirement, which limits the supply available for Millennials and Gen Z. According to a July 2025 Bankrate survey, 54 percent of U.S. adults said there was no mortgage rate at which they would be comfortable selling their home. Nearly 1 in 3 (32 percent) would need a mortgage rate lower than 6 percent to feel comfortable, while 23 percent said rates would need to fall below 5 percent.
 
Supply is Low. The Market is Frozen.
Low supply and pent-up demand have pushed housing prices near all-time highs. The all-time median high for an existing home (all types) was $435,300 in June of 2025 (source: National Association of Realtors). By December 2025, the median price had fallen to $405,400. Even with the slight pullback, prices are still unaffordable, requiring more than 28% of one’s salary. At that rate, would-be buyers can’t qualify for a mortgage.

The median age of 1st time homebuyers is now 40 years old, the highest on record.
This compares with an average age of late 20s in the 1980s. Not surprisingly, we now have “trad” stay-at-home young adults – Gen Z and Millennial sons and daughters who live with their parents. In a recent report from Pew, 18% of young adults were still living at their mom or dad’s home in 2023. Young men were more likely to do so (20% vs. 15% female).

Bottom Line
Interest rates were rock bottom in the wake of the Great Recession to stoke the economy back to life. They stayed there so long that many of us thought that was normal. Inflation changed the game and is still a bug in the economy. With few economists predicting mortgage rates below 6% over the next few years, other solutions (such as multigenerational housing) are becoming more popular – by necessity.
 
It’s important to remember that when we face a financial challenge, the sooner we find a viable solution, the better. (We were able to help many distressed homeowners early in the housing crisis of the Great Recession, which set them up for a better decade than those who had to ride out the trauma.) Email [email protected] and let us know what challenges you’re facing. We’ll do our best to provide you with valuable resources and solutions. Hope is not a strategy.    
 

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Natalie Wynne Pace is an Advocate for Sustainability Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money (6th edition) and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is (2nd edition) are the most recent releases of these books. Follow her on Instagram. 
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Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.​​

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Check out Natalie Pace's Substack podcast on Apple and Spotify.
Watch videoconferences and webinars on Youtube.

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Answers Check out Natalie Pace's Substack podcast on Apple and Spotify.
Watch videoconferences and webinars on Youtube.

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Watch videoconferences and webinars on Youtube.

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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly-traded companies, funds or projects mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect an age-appropriate, diversified wealth plan, which has been designed strategically, with the assistance of financial professionals who are familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge, patience and diversified strategy.  
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Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument.