7.5% Mortgage Rates Are the New Normal, NAHB Economist Says

A 7.5% mortgage rate is the new normal for housing until geopolitical tensions resolve, according to NAHB chief economist Dr. Robert Dietz. "Unfortunately, I think this 7.5% range [for mortgage rates] is the new normal until we get a resolution on these geopolitical factors," Dietz said on the latest episode of the NAHB podcast Housing Developments, recorded in Washington, DC, and published October 12, 2026.

Dietz joined NAHB CEO Jim Tobin and COO Paul Lopez to discuss how the association's economic forecasts have shifted this year under geopolitical turmoil. The picture he painted is unsettled.

"It's a really unbalanced economy right now," said Dietz. "And I think the bond market is reflecting that."

What is pushing mortgage rates higher?

Dietz identified two forces keeping rates elevated. First, massive investment opportunities are competing with bonds — most of them tied to high-tech sectors, such as data center hyperscalers facilitating AI projects. That competition sends Treasury bond prices soaring and takes mortgage rates along for the ride.

Second, inflation remains high, and Dietz tied it directly to conflict abroad. "We also have high inflation right now and that's all tied to the Iran war," said Dietz. "There's just a lot of policy items that are keeping the market in this state of limbo and the result is higher interest rates."

Unforeseen policy moves, including starting a war with Iran, threw off NAHB's housing forecasts for 2026, and Dietz said their impact may persist through 2027.

Is a recession coming?

The economy is still expanding, Dietz noted, and the risk of recession in 2027 is low. He is forecasting a 35% chance of a broad pullback next year.

Asked about potential "wild card" risks for 2027 that current forecasts do not capture, Dietz conceded that a sharp, sudden pullback in the stock market could occur. Still, he sees a familiar historical pattern as the more likely path.

"I still think an early 2000s version of this is how it plays out," said Dietz. "We get higher productivity growth resulting in higher wages."

What does this mean for home building?

Dietz and his team forecast a 3% decline in single-family production next year. That would mark three straight years of modest decreases for the sector.

The combination — mortgage rates pinned near 7.5%, inflation tied to the Iran war, and a third consecutive year of shrinking single-family output — suggests builders face another constrained cycle, with relief contingent on geopolitical resolution rather than domestic policy alone.