Why are mortgage rates still near 7.5% in 2026?

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1. 1

   Unlocking Mortgage Lock-In: Equilibrium Effects in a Spatial Housing Ladder Model

   National Bureau of Economic Research (Fonseca et al.)Published May 1, 2026Checked Oct 15, 2026

   “existing home sales between 2022 and 2024.We show that mortgage lock-in raises net housing demand: missing downsizers stay in larger homes, particularly in expensive areas, demanding more housing and offsetting a third of the aggregate house price decline caused by higher rates.Using individual-level mortgage data, we provide causal evidence that lock-in disproportionately reduces moves down the housing ladder.We design a spatial housing ladder model with long-term mortgages, which generates a distribution of locked-in rates and a causal effect on mobility consistent with the data, and use it to study the equilibrium effects of lock-in.A temporary rate hike causes lock-in, increasing aggregate house prices by 4.4% and rents by 1.5% relative to a counterfactual without lock-in, while mortgage borrowers' mobility falls by 25%.A $10k tax credit to starter-home sellers modestly increases mobility but raises trade-up home prices.We estimate a cost of $650k per marginal move, indicating that demand-based housing policies are poorly targeted responses to lock-in in our model.”

2. 2

   Market Power in Mortgage Lending and the Transmission of Monetary Policy

   Research paper (Scharfstein & Sunderam)Published Jun 1, 2013Checked Oct 15, 2026

   “In the time series, a decrease in MBS yields today has a 32% smaller effect on the average county than it would have had in the 1990s because of higher concentration today. * This paper was previously circulated under the title “Concentration in Lending, Refinancing Activity, and Mortgage Rates.” We are grateful to Zahi Ben-David, Scott Frame, Andreas Fuster, Ed Golding, Laurie Goodman, Amir Kermani, David Lucca, Karen Pence, Monika Piazzesi, Amit Seru, Jeremy Stein, Amir Sufi, and seminar participants at Berkeley, the Federal Reserve Bank of New York, the Federal Reserve Board, Harvard University, the NBER Corporate Finance Spring Meetings, Ohio State, Stanford, Texas, the UCLA/FRB-San Francisco Conference on Housing and the Macroeconomy, and the Urban Institute for helpful comments and suggestions. We thank Freddie Mac for data and Toomas Laarits for excellent research assistance. We also thank the Harvard Business School Division of Research for financial support. USC FBE FINANCE SEMINAR presented by David Scharfstein FRIDAY, Oct. 31, 2014 10:30 am – 12:00 pm, Room: JKP-102”

3. 3

   U.S. Monetary Policy Surprises and Mortgage Rates

   Real Estate Economics (Xu et al.)Published Feb 8, 2012Checked Oct 15, 2026

   “Regression analysis based on bootstrapping shows that surprises in the target federal funds rate (the target factor) have a significantly positive impact on the 1‐year adjustable‐rate mortgage (ARM) rate within the week of the Federal Open Market Committee announcements and the positive impact lasts up to 1 week after the announcements. Surprises in the future direction of the Federal Reserve monetary policy (the path factor) have significantly positive impacts on both the 1‐year ARM rate and the 30‐year fixed mortgage rates in the first week after the announcement. Furthermore, the responses of mortgage rates are asymmetric and affected by the size of monetary policy surprises, the stage of the business cycle and whether the monetary policy is tightening or loosening. There also exists heterogeneity in the mortgage rate pass‐through process across regions and monetary policy surprises have differential impacts on the regional mortgage rates. The cross‐region variations are mainly correlated with the regional housing market conditions, such as home vacancy and rental vacancy rates.”

4. 4

   The Impact of Higher Mortgage Rates on the Housing and Mortgage Markets

   ˜The œjournal of structured finance (Goodman et al.)Published Dec 23, 2022Checked Oct 15, 2026

   “With the Federal Reserve tightening monetary policy, mortgage rates are up considerably. Although higher rates challenge affordability nationwide, they are also associated with periods of strong economic growth, low unemployment, and higher inflation. These latter effects have historically outweighed the affordability effect, and home prices have generally risen, albeit at a slower rate, during periods of increasing interest rates. Although affordability is even more challenged now than it was just prior to the Global Financial Crisis, the housing supply shortage and solid labor market conditions provide a cushion for home price appreciation. Higher rates will reshape the housing and mortgage markets, however: Rate/term refinances are largely choked off, cash-out refinances are likely to continue at much lower levels, and purchase activity will be lower, as there will be fewer buyers and sellers. Higher rates will also lead to the expansion of the second-lien market.”

5. 5

   Higher Mortgage Rates: The Effect on Housing and Mortgage Markets

   ˜The œjournal of structured finance (Nothaft)Published Oct 27, 2017Checked Oct 15, 2026

   “After an unprecedented period of accommodative monetary policy, the Federal Reserve has begun to normalize its policy stance. Since December 2016, the Federal Reserve has raised the federal funds target three times, in one-quarter-point increments. The consensus view among members of the Federal Open Market Committee, as well as the expectations of business economists, is that one additional quarter-point hike is likely to occur by year-end 2017, with a cumulative 0.5 to 1.0 percentage point increase likely during 2018. TOPICS:Fixed income and structured finance, legal/regulatory/public policy”