US mortgage rates may stay above 7% through 2027 as inflation, government borrowing and AI spending raise costs

US mortgage rates are likely to stay above 7% through 2027 due to rising inflation, government borrowing, and investments in artificial intelligence, according to major housing groups. Fannie Mae predicts mortgage rates will average 7.5% in 2027, while the Mortgage Bankers Association expects them to remain above 7%. The 10-year US Treasury yield significantly impacts mortgage rates, as they typically move in tandem with this bond.

High inflation is a primary reason borrowing costs may stay elevated, as investors demand higher returns on long-term bonds when inflation persists. The US inflation rate has remained above the Federal Reserve's target for years, with no period of below-target inflation since February 2021. Additionally, the US government's heavy borrowing increases pressure on borrowing costs.

The rapid growth of AI is also driving up demand for capital, leading to fierce competition for funds. The Federal Reserve is no longer providing the same level of support to the mortgage market, removing a key source of rate stabilization during the pandemic. A weaker economy could further lower mortgage rates, as investors might shift their money into US Treasury bonds, which are seen as relatively safe investments.