Forget rate drops — here's where mortgage volume will come from

With mortgage rates expected to hover near current levels for much of 2026, lenders shouldn't count on rate drops to drive originations growth — and a panel of leading economists at Intercontinental Exchange's ICE Experience conference in Las Vegas this week made clear where volume will actually come from.

"We're essentially back in a world where mortgage rates are coming at a reasonable level, so the question becomes how do we generate more volume, more transactions, more refinances in a world where we can't expect it to be done by a falling of the mortgage rate," said Mark Fleming, chief economist at First American Financial Corp., describing the steep downward movements of the last decade as "abnormal."

For mortgage lenders, that means originations growth will be driven primarily by new purchases. The Mortgage Bankers Association forecasts 2026 originations to grow approximately 8% from last year to $2.2 trillion, with loan transaction volume rising to 5.8 million units from 5.4 million last year.

"There's going to be refi moments. There's going to be cash-out demand, but most of the volume is going to be purchase, and sort of a long, slow, uphill in terms of that purchase growth," said MBA Chief Economist Mike Fratantoni.

Inventory is a key driver. A market that favors buyers and ample new-home inventory should drive an uptick in purchases, Fratantoni said. "You have a lot of builders that are very interested in moving the properties that they have completed, in particular."

Home equity as a strategic play

A market where large numbers of homeowners aren't looking to move also creates opportunity in home equity lines of credit and similar products, especially with the record amount of accrual gained since 2020, panelists said..

"I think a lot of folks in our industry have turned towards that. It's a very sensible strategy," Fratantoni said.

Adding momentum to home equity lending is a recent narrowing of the rate spread between cash-out refinances and HELOCs, said Andy Walden, head of mortgage and housing market research at ICE. "When you look at the dial between cash-out refinancing and HELOCs, that dials as far toward HELOCs as we've seen at any point in 25 years," he said.

Rate drops would still move the needle

Even modest rate declines could quickly stir borrower activity. Walden noted that crossing the 6.25% threshold would bring in roughly 1.4 million potential refinance candidates.

"When we see a day where rates drop into the high fives, you will see a pop in rate-lock volumes on those days, because you are seeing all this instantaneous activity for folks that are really dialed in," he said.

The lock-in effect and what comes next

The lock-in effect, a consequence of mortgage rates that have sat above 6% for much of the last three years, remains the central constraint on housing supply and turnover. The patterns are largely unprecedented since the introduction of the 30-year fixed mortgage in the mid-20th century.

"We never experienced it because over the long run, since the 1980s, mortgage rates have always been coming down. There's never been a lock-in effect," Fleming said.

Demographics, however, could eventually shift the equation. As baby boomers age out of their homes, Fleming warned of a potential supply surplus, citing the "barbell shape" of U.S. demographics, with large older generations exiting homeownership while smaller younger generations take their place.

"There's a possibility because of the barbell shape of our demographics — huge generations aging out, and the generations that are coming in at the time 10 years from now will be much smaller — we could have excess supply," he said.

What that means for borrower behavior remains uncertain. "We really don't know behaviorally how people will respond," Fleming added.