WASHINGTON — Credit unions face a difficult mortgage-lending environment through the remainder of 2026 as rates approach 7%, home sales weaken and economic uncertainty keeps prospective buyers on the sidelines, according a number of new analyses and forecasts.
Although 7% is not a technical threshold for affordability, economists told the Wall Street Journal that reaching it could further discourage consumers already confronting record-high home prices, rising insurance costs and uncertainty about employment.
“A jump in rates like this will certainly cause prospective home buyers to pause,” Mortgage Bankers Association Chief Economist Michael Fratantoni told the Journal. “They may not go ahead and put in that contract or apply for the loan.”
The combination could mean fewer purchase-mortgage applications and limited refinancing activity for credit unions through the end of the year. It could also increase competition among lenders for qualified borrowers while placing additional pressure on mortgage pipelines and fee income.
Briefly Touching 7%
Mortgage rates, as measured by Freddie Mac, briefly reached 7% in January 2025 but have not remained above that level for an extended period since the second half of 2023. Before 2022, rates had not reached 7% since 2001, the Journal reported.
Rates generally track the yield on the 10-year Treasury note, which briefly surpassed 5% Monday for the first time since late 2023. Bond yields have risen amid persistent inflation concerns, growing federal deficits and geopolitical uncertainty associated with the war in Iran.
As credit union rate watchers and rate-setters know, the direction of mortgage rates will also depend on how markets interpret Federal Reserve policy. A rate increase could lower longer-term yields if investors believe the central bank is bringing inflation under control. However, yields could move higher if the action reinforces concerns that inflation is more deeply entrenched, according to the Journal.
Housing Activity Deteriorates
Housing activity has already deteriorated. The National Association of Realtors reported that existing-home sales declined 2% in August to a seasonally adjusted annual rate of 3.98 million, the lowest level since June 2025.
Zillow economists began the year forecasting a 4.3% increase in 2026 home sales. They now expect sales to rise only 1.3% for the full year and fall 3.5% during the fourth quarter.
“The math for the rest of the year is going to be very challenging,” Zillow economist Kara Ng told the Journal.
The weakening outlook follows a brief period of optimism in February, when mortgage rates fell below 6% and generated increased buyer interest. Rates subsequently climbed after the United States and Israel attacked Iran and rose further as concerns about inflation and government borrowing fueled a bond-market selloff.
The slowdown is also affecting sellers. Some are cutting asking prices, while others are removing properties from the market and considering renting them instead. Ng said sellers increasingly appear willing to withdraw their homes and try again later.
Approaching Pre-Pandemic Levels
Unlike in 2023, housing inventory is now approaching prepandemic levels as homeowners who had been waiting for mortgage rates to fall have begun listing their properties. However, rates near 7% could interrupt that progress by discouraging both buyers and owners carrying mortgages with rates in the 2% to 3% range.
The broader economy could create an additional drag on mortgage demand. Fratantoni said employment conditions and wage growth are less favorable than they were during the last major mortgage-rate increase in 2023.
“Wage growth is not that great. The job growth we’re seeing is concentrated in just a few sectors,” he told the Journal. “I think that’ll show up as less-than-robust demand on the housing side.”
Higher rates could also slow new-home construction. Builders have used mortgage-rate buydowns to attract customers, but those incentives become more expensive as market rates rise, reducing profit margins and potentially limiting future construction.
