New Fed Sheriff Forecasts Higher Mortgage Rates in 2026

By Don DeBat

There’s a new Fed Sheriff in town, and analysts say home buyers’ hopes and dreams for lower mortgage rates in 2026 likely will remain in interest-rate jail.

In his first Federal Open Market Committee meeting on June 17^th, President Donald Trump’s newly appointed Federal Reserve chairman Kevin Warsh made it clear there is a new game being played at the central bank.

The Fed held the key federal-funds rate at a range of 3.50% to 3.75%. It was the fourth consecutive meeting without a move. The decision was unanimous and widely expected.

Early in March of this year, 12 of 19 voting Fed officials expected at least one rate cut this year, and no one anticipated hikes. Last week’s forecast looked almost nothing like that.

Nine officials now expect at least one quarter of 1 percentage-point increase in rates by year-end. Eight see rates unchanged. Only one still penciled in a cut. Chairman Warsh didn’t even bother to vote. The median projection now points to an interest-rate hike in 2026.

Analysts said the policy statement was “notably terser” and shorter than anything produced under former Fed chairman Jerome Powell. Gone was the language committing to the Fed’s 2% inflation goal.

In its place: “the Fed committee will deliver price stability.” Gone too was the so-called easing bias—the conditional language that had outlined the circumstances under which the Fed might consider cutting rates. No replacement language was offered by Warsh.

 The Fed’s “Summary of Economic Projections” shows no rate reduction expected in 2026, with the policy-funds rate now seen ending the year at 3.8%, up from the March projection of 3.4%. The rate path beyond that also shifted higher—3.6% in 2027 and 3.4% in 2028, compared with prior estimates of 3.1% for both years. The longer-run rate holds at 3.1%.

What do all these forecast numbers translate into for would-be Chicago-area home purchasers who hope to buy a home this summer and get the kids into school by September? Or newly-weds shopping for that new lakefront condominium?

Home buyers can continue to dream of homeownership and that white picket fence in the future, or buy this year and likely pay an interest rate of 6.5% to a high of 7.25% for a 30-year fixed loan.

Rate creep coming?

Kurt Funderburg, chief investment officer (CIO) at Byline Bank’s Wealth Management Group, noted that mortgage-market analysts are currently pricing roughly seven basis points of hikes by year-end, which would push current home-loan rates to about 7.25% by New Year’s Day. 

Analysts say an inflation rate of 4.2% is too elevated by high oil and gasoline prices caused by the Iran War’s blockade of the Strait of Hormuz—along with high air fares, grocery prices, retail and other goods and services—to justify rate cuts. With the Iran ceasefire agreement set to be signed soon, and energy price pressure easing, at least temporarily, the Fed has room to wait. 

If lenders buy into the ceasefire agreement and the reopening of the strait, that could alleviate some of those pressures and help bring the yield down over the balance of the year, analysts said.

Warsh emphasized that policymakers are “unambiguous and unanimous” in their commitment to restoring price stability after more than five years of inflation running above the Fed’s 2% fantasy target. With the labor market still holding up, the central bank appears to believe it has room to stay the course without immediately destabilizing employment.

Experts said extended inaction on future rate adjustments by the Fed would be historically unusual. Outside of periods like the Covid plague, when the Fed-funds rate was effectively at zero, the Fed’s Open Market Committee hasn’t gone a full calendar year since 1993 without adjusting rates. 

“Higher interest rates raise the cost of capital, slow discretionary spending, compress margins, and pressure equity valuations,” said commercial loan specialist Michael Underhill, CIO at Capital Innovations. “Markets run on liquidity—and a Fed leaning harder into inflation-fighting mode becomes a structural headwind for risk assets. Markets are still working out what comes next.”

Benchmark rates decline

Despite all the gloomy interest-rate news coming out from the Fed, on June 18^th Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed-rate mortgage averaged declined slightly to 6.47% from 6.52% a week earlier. A year ago, 30-year fixed loans averaged 6.81%.

However, analysts noted that the Freddie Mac survey runs a week behind the “real-time” home-loan market, so the Fed’s outlook had not yet been fully digested by lenders.

“Nationwide, incoming data continues to reflect a resilient consumer, with pending home sales strengthening, and purchase demand continuing to modestly improve,” said Sam Khater, Freddie Mac’s chief economist.

On June 18^th, Freddie Mac reported that rates on 15-year fixed loans averaged 5.81%, down slightly from 5.84% a week earlier. A year ago, the 15-year fixed mortgage averaged 5.96%.

The survey is focused on conventional, conforming, fully amortizing home-purchase loans for borrowers who place 20% down and have excellent credit.

However, the cheerful housing report by Freddie Mac’s Khater, does not align with the reality of Chicago’s North Side home resale market.

In May, median resale home prices rose a hefty 14.5% to $646,125, compared with the same month a year ago, because of low inventory and continued buyer demand, according to the Baird & Warner’s June North Side Market Analysis co-authored by veteran broker John Irwin and Jackie Lafferty.

“As we move into early summer, the market is expected to remain supply-constrained and continued price growth is expected,” noted Irwin. Only 691 homes were sold in May, down slightly from May of 2025, and new listings declined 20.4% to 904 properties. 

The market analysis covers the Near North/Gold Coast, where median prices rose 15.5%.

Prices in North Center rose 15.1%, followed by Lincoln Park (+13.8%) and Lakeview (+6.1%).

Impact of Iran War

The Iran War, launched in March by President Trump, has had a major impact on the market, pushing mortgage-interest rates sharply higher, analysts report.

“Prior to March 1^st benchmark 30-year fixed loan rates dipped to 5.99% for the first time in 3.5 years, and everything seemed to be moving along positively,” noted veteran lender Jeremy Rose, senior loan officer for Stonehaven Mortgage.

However, conventional mortgages rates rose between 0.5% [half of 1 percentage point] and 0.375% to around 6.5% as a direct result of the Iran War and other economic factors.

“Significant geopolitical uncertainty exists, and until there is a long-term resolution we will continue to see elevated rates,” Rose predicted. “The markets and traders have interpreted new Fed chairman’s comments as forecasting a rate hike later this year, Rose said. “In my opinion I do not see mortgage rates going below where they were earlier this year.”

Outside of paying extra fees for a rate buydown, Rose doesn’t see many options for people seeking a below-market deal. “Obviously, a good credit score [above 750] always helps, and there are some incentives for first time home buyers,” he said.

First-time buyer deals

On the positive side, Rose noted that first-time borrowers in Chicago who earn $97,200 or less for a four-person household, and have decent credit can qualify for a below-market rate mortgage through the Fannie Mae “Home Ready” program, designed to make home financing more affordable.

“It practically equates to an interest rate cut of about a 0.375% of 1% under the market mortgage rate compared with borrowers whose income is above the threshold,” explained Rose, who can be contacted via email at jeremy.rose@stonehavenmtg.com.

For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.