Mortgage Rates Fall to a Three-Year Low—Will They Keep Dropping?

Mortgage rates fell sharply Tuesday, bringing the average rate back near the 2025 lows from late October—levels investors have not seen since late 2022. 

The drop was steep, even more than the bond market alone would suggest. Most of the improvement stems from a few data points, namely, another soft ADP employment report and market reaction to rumors that Kevin Hassett, current Director of the National Economic Council and viewed as rate-friendly, may become the next Fed chair.

The 10-year Treasury touched below 4% as yields fell after New York Fed President John Williams signaled the Fed may cut rates at its final 2025 meeting next month. Fed funds futures traders increased their bets following Williams’ remarks for a December cut to a 70% likelihood. 

In other major mortgage news, FHFA raised the 2026 conforming loan limit to $832,750—up $26,250 from 2025. High-cost areas now reach $1,249,125 (150% of the baseline). The increase reflects slower but still positive home-price appreciation. Most lenders will begin accepting loan applications with the increased loan limits beginning immediately, or in the coming week.

According to Zillow, today’s rates equaled the lowest of 2025, with the average 30-year rate at 6.06%.

What to Expect for 2026

Our fearless forecast is for the Fed’s independence to soften sharply in 2026 and for rates to gradually reach levels that will drive a potential stampede of investment through the end of the current administration.