As 2025 draws to a close, mortgage professionals face a market facing volatility, policy pivots, and evolving borrower dynamics. In the latest episode of Optimal Insights, Jim Glennon, Alex Hebner, James Cahill, and Kevin Foley break down the year’s defining trends and outline what they mean for your business heading into 2026.
Here’s what you need to know this week.
This Week’s Key Signals
Fed’s Final Move of 2025
The Federal Reserve delivered its third rate cut of the year – 25 basis points – bringing total reductions to 75 basis points.
Despite easing, the tone remains hawkish. Jim Glennon noted: “Half the Fed isn’t fully on board with slashing interest rates.”
Labor Market: The Hidden Story
November’s jobs report is expected to show just 50,000 new positions, and revisions suggest deeper weakness.
Kevin Foley connected the dots: “If the labor market is weaker than we think, that could be beneficial for mortgage rates going into 2026.”
Housing Market Reset
Price appreciation has cooled, with some regions turning negative.
Inventory is improving, but affordability remains a structural challenge.
2025 Market Recap: The Forces Shaping Mortgage Rates
This year presented a complex landscape for mortgage professionals. While many anticipated a steady glide toward lower rates, reality delivered a far more nuanced story.
Here’s what truly moved the needle:
Upward Pressure on Rates
Debt Supply Surge: Record-breaking issuance of U.S. Treasuries and corporate bonds fueled competition for capital, pushing real rates higher.
Defense and Geopolitical Spending: Rising global tensions translated into increased government outlays, adding strain to the bond market.
Tech Investment Boom: AI and semiconductor expansion drove unprecedented capital expenditures, creating a structural demand for funds that elevated borrowing costs.
Inflation Expectations: While CPI hovered between 2.5% and 3%, the market priced in persistent inflation risk, keeping long-term yields sticky.
Downward Pressure on Rates
Labor Market Softening: Job revisions and slowing payroll growth emerged as the most influential downward force. As James Cahill observed: “If that October jobs revision hadn’t hit, we might not have seen three rate cuts this year.”
Global Conflicts: Wars in Ukraine and Gaza, coupled with U.S.–Iran tensions, introduced risk-off sentiment, nudging rates lower – though not enough to break the 6% mortgage threshold.
Policy and Regulatory Dynamics
Tariffs and Trade Tensions: April’s tariff shock rattled markets, defying conventional economic logic and amplifying volatility.
CFPB’s Retreat: Federal oversight weakened, prompting states to step in with their own enforcement frameworks – a trend likely to accelerate in 2026.
FHFA’s Creative Experiments: Proposals like the 50-year mortgage sparked debate but underscored a critical truth: affordability challenges won’t be solved with a single headline solution.
Housing Market Reset
After years of relentless appreciation, 2025 marked a turning point. Listings increased, price growth stalled, and some regions – particularly in the South and West – posted modest declines.
Actionable Advice for Mortgage Professionals
Track Labor Indicators: Jobless claims and revisions will shape rate expectations.
Plan for Regional Divergence: Northeast markets remain resilient; South and West show signs of depreciation.
Adapt Product Strategy: Affordability challenges may drive interest in alternative loan structures.
Stay Ahead of Compliance: State-level regulation could reshape obligations in 2026.
The consensus for 2026 suggests a flat rate environment – but history warns against complacency. Global shocks, policy pivots, or unexpected economic shifts could redefine the mortgage landscape overnight.
Tune in to Optimal Insights for the latest perspectives from the experts at Optimal Blue. Available on all major podcast platforms: https://optimal-insights.captivate.fm/listen
The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Optimal Blue, LLC.