He’s been at the MBA and Fannie Mae. Here’s who he thinks has the better 2026 mortgage forecast

Economist Doug Duncan weighs in on the challenges facing economic forecasters today, cutbacks in economic reports produced by Fannie and Freddie, Fed independence, and more. For more than three decades, economist Doug Duncan was a driving force behind forecasts and analyses that informed strategic decision-making in corporate boardrooms and in the halls of government. As the chief economist for the Mortgage Bankers Association and then Fannie Mae, Duncan helped mortgage lenders and policymakers navigate booms and busts — including three recessions that followed the dot-com boom, the subprime mortgage crisis and the COVID-19 pandemic. After leading Fannie Mae’s highly regarded Economic & Strategic Research (ESR) Group for 17 years, Duncan “retired” from the mortgage giant last year, but continues to work as a consultant as the sole proprietor of his company, Duncanomics LLC. The Texas A&M University-trained economist recently took the time to share his thoughts on challenges facing economic forecasters today, cutbacks in economic reports produced by Fannie Mae and Freddie Mac, Federal Reserve independence and where mortgage rates could be headed next year. Spoiler alert: Duncan’s view of where mortgage rates are headed aligns more closely with the latest forecast by economists at the Mortgage Bankers Association than with Fannie Mae’s. What follows is a version of Inman’s conversation with Duncan that has been edited for length and clarity. Inman: Economists have always had to contend with uncertainty when making forecasts, but is it fair to say that forecasting is even more challenging right now, with tariffs, tax and immigration policy all having an impact? Duncan: The two things I would say that engender greater uncertainty are the end of 50 or 60 years of declining tariffs and nominal interest rates. The world was focused on advancing free trade for a very long time, and only recently reversed that. So there’s very little empirical evidence in a modern economy about how tariffs actually function. You’re sort of left to the theory of what should happen, and then deciding on how much to weight that in the forecast that you do. The second thing is we’ve also come to the end of 40 or 50 years of declining nominal interest rates, and had a period of zero or negative real interest rates. Interest rates recently became positive again in real terms, but all of that is not a part of anyone’s history. On the interest rate front, I started about a decade ago telling bank groups that I would speak to, “You need to understand that you have no one in your management that has managed in a sustained rising rate environment, and you need to think about that from a risk management perspective.” Now we’ve seen also a burst of inflation, which is not all gone, and so that was kind of an alien experience for management as well. The first forecast that I gave after I had retired [from Fannie Mae] was that growth will be strong. Because my view was that the One Big Beautiful Bill, which has lots of pros and cons, the one thing it did do is make the tax planning horizon a long-term horizon for businesses, and that is valuable in planning. I said I think that will override the uncertainty that will come with the tariff discussions, so that there is some sort of a stability related to that. So I feel pretty good about that forecast. I think as far as next year, what I’m telling people is, in the beginning of the year, you’re going to have an unexpected amount of rebates to households — people are actually over withholding and will get more back when they file their taxes than they thought. So consumer spending strength is likely to be stronger than what would have been anticipated. Now, I’m not the only one that’s been talking about that, so there will be some expectation adjustment based on that. The other thing is, in thinking about employment, we’ve never gone through a period in modern history where we actually exported people, and we’ve never had a period where we had zero immigration. So then you have to think about the labor data. To me, the two most important pieces of information in the latest labor report were the big jump in people working part-time that wanted full-time. That was a big jump, something like 900,000 over the two-month period, and that — combined with the positive private sector employment growth — suggests to me that the underlying tax structure, depreciation schedule and all that has calmed businesses down and given them a longer-term planning horizon. And I think if it is true that the tariffs do settle, and we don’t see much attrition, then I think we’ll add jobs next year. The latest forecasts from Fannie Mae and the Mortgage Bankers Association differ significantly, with Fannie Mae economists more optimistic that mortgage rates will continue to come down. While the MBA expects home sales to pick up next year, Fannie Mae is even more bullish. At the same time, Fannie Mae recently discontinued its National Housing Survey, a gauge of homebuyer sentiment dating back 15 years, and the forecasts it produces no longer include commentary. Freddie Mac stopped publishing forecasts altogether this year. Any thoughts on whether the forecasters who work at Fannie and Freddie are subject to political pressure? So I was the chief economist at the Mortgage Bankers Association [from 1992 to 2008] and then chief economist at Fannie Mae [2008 to 2024]. The difference was the review process of what became the forecast. At the MBA, whatever I said was the forecast — there was no oversight. I didn’t have to be responsible to anyone, which is not a good thing. At Fannie Mae, there was a very specific corporate structure related to oversight. In fact, I built part of it myself, and there was a whole bunch more that was added by FHFA [the Federal Housing Finance Agency]. A certain amount of that is good, because it suggests rigorousness in the structure of modeling and risk management. Economist Doug Duncan is interviewed in Denver in 2003, when he was the chief economist for the Mortgage Bankers Association. Photo: Jerry Cleveland/The Denver Post via Getty Images. All forecasters have different points of view on different things. That’s nothing unusual about that. The forecast team [at Fannie Mae] is the same forecasting team, by and large, from when I was there, so I think it’s reliable. But they’re not allowed to do commentary. I think one of the things that’s been learned over the last 20 to 30 years is that it does matter how you tell the story of how the numbers in the forecast got to be the numbers, and how they play out from an inference perspective. So that was the thing that I think made my career was, early on, I focused on getting rid of the economic jargon and talking to the business people in the language they talked to each other. And that meant interpreting the forecast for them. My agreements with both the MBA and Fannie Mae were the same with regard to speaking the truth, whether it was to the immediate benefit or detriment of the organization. Because it’s better to be completely honest about the problem — it goes away faster if you’re honest about it, or at least you know how to address it, then if you try to hide the truth, which always eventually comes out and then causes greater damage. So I steadfastly maintained that position. When I left, I had 42 people working for me. They were required to let go 10 people, I think, out of the research and economic space, and I think there’s been a little bit of a rejiggering of responsibilities in that space. The discontinuation of the [National Housing Survey] is a disappointment for forecasters. It was listed on Bloomberg, so it was a data point. I think there were people that watched that and I think it’s unfortunate [it was discontinued]. My argument for some of the [research and economic data] that Fannie released was that, while we were in conservatorship, we had a responsibility to the public who owned us to make those things available. Was it a benefit to the public? There are many private firms that make their information public, because it helps decision making in markets and that was my view, and that was supported by the leadership. So a different decision was made. I think that’s disappointing from the perspective of having done the survey for quite some time. The Fed brought short term rates down by a percentage point in 2024, and mortgage rates went up by almost the same amount when inflation surged. After three more Fed rate cuts this year, what are your thoughts about where mortgage rates might be headed in 2026? If we set aside Fannie and Freddie, and just think about the macro environment and monetary and fiscal policy, what should we expect for rates? I think unless there is clear evidence that underlying inflation is going to get back sustainably to the 2 percent target I don’t expect to see mortgage rates break through [below] 6 percent. I’d be surprised. I think it’s more like 6 1/4 to 6 1/2. Source: Fannie Mae and Mortgage Bankers Association December, 2025 forecasts. If growth is 2 1/2 percent, which is a probably reasonable view, and you start to see some pickup in employment again, then I would not expect to see long rates come down. The Fed may decide they have room to cut short rates more, but that really depends on inflation coming down, because there’s a pretty solid subgroup [of Fed policymakers] that doesn’t feel like there should be easing going forward. As far as home sales, there’s two things that I would watch. I have a chart which became famous, internal to Fannie Mae — the board of directors actually gave me a signed copy of that particular chart when I retired because they liked it. I called it the barbed wire chart. It’s a chart that shows, on the vertical axis, the median home price divided by median household income, and mortgage rates on the horizontal axis. If you think about the history of the mortgage business, the rule of thumb was you could afford a house whose price was three times your annual income. You can afford more or less house depending upon whether mortgage rates are lower or higher. That relationship is a very predictive relationship, all the way from the early 1980s until the great financial crisis, where there was a huge bubble. You could see it in the chart that things had departed from normal — by far. Then there was a collapse. Then for about four years, say, 2015 to 19, [the relationship] was right back on that predictive line. And then COVID hit, and it blew off the line again. So the question is, then, what happens to those variables? House price is a function of supply and demand, and right now, the demand exceeds supply, and you’ve seen all the estimates of how many more houses we should have, so I won’t belabor that. Household incomes, well, the data in the employment numbers that just came out, there was very weak real income growth. So there would need to be some acceleration of income growth, which we may see with the tax rebates and a pickup in consumer activity — those things may generate stronger real growth in incomes. Whether interest rates are going to come down comes back to what you think about whether inflation now is solely a function of the tariffs, or whether there is underlying inflation that is still running above target. Right now the discussion is all about tariffs, but tariffs are a relative price change that’s “one and done.” I don’t see the tariffs as the core cause of this. There’s an underlying inflation that was never cured before the tariff discussion started. How might the Trump administration’s plans for Fannie Mae and Freddie Mac factor in? There have been warnings over the years about how reprivatizing Fannie and Freddie might drive mortgage rates up, but that’s not what this administration seems to be interested in doing. It looks like they’ll keep Fannie and Freddie in conservatorship for now, and sell a small portion of the government’s stake in the companies. I mean, there’s a lot of questions that have to be answered if you’re going to sell equity in something. If somebody came to me and said, “This government entity owes me $350 billion, and I will still sell you a share of it,” my first question is, “And how do I see what those earnings are? And what’s the return on that investment?” Well, how do I see that? And it’s not clear to me that that can be seen at the moment. There’s no question if Fannie and Freddie are taken out of conservatorship, and there is no [government] guarantee or implied guarantee [of their obligations], I would certainly expect mortgage rates to rise because risk spreads would widen out. So they do have to deal with three things: They have to deal with what are they going to do with the government’s ownership, what are they going to do with implied guarantee, and will there be some sort of an alternative to the implied guarantee, like an explicit one, but paid for? And then how does that work into the pricing? There’s lots of other issues too, but those are some basic things I think need to be thought about. Another wild card for economists has been the issue of Fed independence, with the Trump administration’s pressure on Federal Reserve Chair Jerome Powell’s to lower interest rates raising concerns that the president might try to install policymakers who will do his bidding. If that spooks investors who fund most mortgages and government debt, the fear is that long-term interest rates might go up even when the Fed cuts short-term rates. So I personally think the discussion of Fed independence has been a very confused discussion. What most people refer to is whether the board of governors will take direction on where to set interest rates from the White House. If you narrow it to that, I don’t know any economist that thinks that’s a good idea, because all the empirical data point in the other way. So I certainly think that’s a poor idea. That said, the Fed’s Charter is a political charter. And so the idea that somehow it’s above all politics, I think, is a false notion. Whether the Fed could use reform in other areas, that’s a long discussion. If you look at the economic geography of the United States, does it make sense that only [three of the 12 Fed regional banks] are west of the Mississippi? With the failure of Silicon Valley Bank, the Fed was a part of designing the capital rules which incented them to hold fixed-rate securities, whether Treasurys or mortgage-backed securities, which are very interest rate sensitive from a valuation perspective. So when they raised interest rates, it shouldn’t have been a surprise that the value of those assets banks were encouraged to hold actually fell. Now you can put the blame on bank management for not thinking about that, but it’s an example that [the Fed] is involved in a lot of other things than just setting the Fed funds target rate. Now in terms of how Trump can impact it, the terms of the regional bank presidents are now fixed until after Trump leaves office. If someone resigns, then that might open an opportunity. But in terms of the board of governors, there’s only two appointments he will have unless someone resigns, and that’s Stephen Miran and [potentially] Lisa Cook [who Trump is attempting to remove from the board before her term expires in 2038]. Powell, while his chairmanship expires in May, his underlying seat does not expire until 2028. There is precedent for a chairman stepping down from the chairmanship, but remaining on the board — that has happened before. So those are the numbers. That doesn’t give Trump a majority to drive what he wants in terms of interest rates — it’s just a kind of a straightforward calculation. Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.