iEmergent’s Q2 2026 Mortgage Origination Forecast Update

Extra! Extra! Read all about it! Our Q2 mortgage forecast is now available in Mortgage MarketSmart! 

In our Q1 update, we projected 2025 combined (purchase + refi) mortgage originations at $1.94 trillion. Preliminary HMDA data later put the total at $1.957 trillion, just 0.9% above our estimate. Our purchase forecast was only 0.9% high, while our refi forecast was 4.5% low. Not a bad forecasting effort.

As mid-2026 approaches, a lot of extraordinary things are happening, keeping conditions volatile. The Iran conflict continues to be a rollercoaster. The Fed has a new boss. Midterm elections are quickly approaching. And the stock market has hit new, all-time highs driven by the artificial intelligence (AI) frenzy, the SpaceX IPO, and improving labor market news. These are just a few of the headlines affecting the economy and our outlook for the housing and mortgage markets. How will it all shake out?

Key Economic Indicators

Since last quarter, our outlook for some key economic indicators has changed.

Real GDP: The latest estimate of Q1 GDP data from the US Bureau of Economic Analysis (BEA) indicated that real GDP rose 2.5% year-over-year, with a strong increase in business investment and solid consumer spending. In our forecast, we now believe that by yearend 2026, year-over-year GDP growth will likely be HIGHER than 2.0%, despite impacts from the Iran war oil shock. Stimulus from the One Big Beautiful Bill Act alone is estimated to add around 1% to GDP this year, according to the non-partisan Congressional Budget Office, and business investment will continue to boom in the AI frenzy.

Employment: Labor market conditions have recently improved slightly, with the April and May unemployment rate ticking down a notch to 4.3% and more solid, but still modest, growth in new jobs in the last three months. The “low hire – low fire” economy continues to persist. The slow deterioration in the labor market we previously expected has been pushed out into 2027.

Interest Rates: But for a few dips along the way, both short- and long-term interest rates have risen since the start of the war in Iran. The 30-year FRM rate is up nearly 50 basis points since the end of February, though it is still lower than it was a year ago. Primary drivers are the higher inflation the oil shock has already caused and will continue to cause, as well as the higher deficits expected in waging the war. Stronger-than-expected economic data has also emerged as a factor putting upward pressure on rates. Just a month ago, many financial market pundits expected the Fed to ease the Federal Funds rate. Now, standing pat seems the reasonable course of action, and there is growing sentiment for raising rates. Our interest rate expectations haven’t changed: We expect continued upward pressure on long-term rates in the near term. BUT next year, if economic growth begins to show signs of slowing or decline, long-term interest rates could fall. We also don’t expect the Fed to move the Fed Funds rate target for the rest of this year.

Inflation: Inflation continues to creep up. Since its low point of 2.6% last April, the Powell Fed’s preferred inflation indicator, the change in the core PCE price index deflator (personal consumption expenditures index excluding food and energy), has moved slowly higher, reaching 3.3% in April, the highest level since October 2023. (Note: New Fed Chairman Warsh is said to focus on the “trimmed mean” PCE inflation rate, which was 2.35% in April and has just barely begun to rise.) We expect the energy price shock will continue to be the most significant factor pushing inflation higher in coming months, but even if the war ends soon and completely, reverberations from the shock will likely keep upward pressure on prices.

Housing Market: Although housing affordability has worsened with the recent interest rate rise, it is still better than it has been for most of the last four years. However, it is still higher (worse) than the long-run average. Moreover, home price appreciation is nearly flat, and inventories of homes for sale have improved from recent years of very scarce levels. Nevertheless, home sales have remained lackluster this year due to several additional factors as well.

• “Lock-in” effect – Homeowners who secured 3–4% mortgages during the pandemic recovery would now face rates around 6.5% if they sold and bought another home, discouraging them from reentering the market.
• Supply mismatch – Recent new construction has focused largely on high-end homes, where supply now exceeds demand, while lower-priced starter homes remain critically scarce, making things especially difficult for first-time homebuyers.
• New construction slowing – With the oversupply of high-end homes and rising interest rates, builders have already begun to pull back on new projects, and new construction has slowed to the lowest levels since 2020.

Mortgage Origination Forecast

Originations Forecast Adjustments: From Q1 to Q2, we’ve made a few adjustments to our forecast:

• On purchase originations, we’ve reduced 2026 and 2027 volumes by 7% and 6%, respectively.
• On the refi side, we’ve trimmed 2026 and 2027 volumes by 4% and 3%, respectively.

Both sets of adjustments were driven primarily by the higher expected interest rate environment.

With those adjustments, we forecast 2026 purchase originations of $1.40 trillion, a 4% increase from 2025. Refinances should come in at $834 billion, up 38%, most of which will have hit in the first four or five months of the year on loan applications locked in before interest rates began rising. In total, we expect 2026 first lien originations at $2.235 trillion, up 15% from 2025.

For 2027, we see only a small gain in the purchase segment and a nearly flat refi segment, with total originations at $2.307 trillion, just a 3% gain over 2026.

Stay tuned to our continuing coverage of the housing and mortgage markets!