Top economists’ views on the stalled economy

As we enter the second quarter of 2026, it already feels like an unexpected year. After just over three months, some of this year’s key economic forecasts have had to be recalculated.

For example, the housing market started the year with mortgage rates on the decline. Housing prices are also declining or remaining flat in many regions. Post-COVID-19, it looked like housing affordability and home sales were headed for a better year. But mortgage rates have risen in recent weeks amid continued instability due to inflation and the Iran war.

“While we don’t know the duration or ultimate impact of the Iran war, the survey results provide some comfort,” said Mark Hamrick, senior economic analyst at Bankrate. “Long-term interest rates should ease to some extent and the job market should remain relatively stable.”

Bankrate has been conducting a quarterly survey of Japan’s top economists for 10 years. Once again, we asked them to look in the mirror and tell us what they expect when it comes to mortgage rates, recession, unemployment, and inflation.

Economist predictions on key economic indicators

play with the recession

One of the biggest changes in this quarter’s survey is the rise in recession risk. Recession risk rose to 34% this quarter from 28% at the end of last year, near the lowest level in years. The single most cited reason for the increased likelihood of a recession is the Iran war and its impact on oil supplies.

The U.S. economy was already facing many headwinds, and the Iran war added to them.

Housing and employment will reach ice age in 2026

With all of this in mind, it’s no wonder that in today’s economy, choosing between buying a home or investing in your current home can feel like a risky decision. If you’re feeling stuck in your job or housing situation, it’s entirely possible to blame it on macroeconomic reasons. Home sales have slowed significantly since 2022, and job growth has stagnated over the past year. Most economists surveyed expect little change this year.

“We expect job growth to continue at a moderate pace through 2028,” Seidel Baker said, adding that the number of layoffs is lower than this time last year. The labor force participation rate for people aged 25 to 54 is at its highest level in 20 years.

Some economists expect the job market to remain low and underemployed throughout the year, with both labor supply and demand slowing. This is a bit of a double-edged sword for workers. They may not feel at risk of being fired, but they may also not have the ability to change jobs.

The effects of this slowdown in labor supply and demand will also affect the housing market.

“The housing market continues to suffer from a lack of supply, but rising mortgage rates are once again turning buyers away,” KPMG’s Maleev said. “Home values ​​continue to rise, albeit slowly, across the country, and despite declines in some areas, home equity remains substantial.

An even more worrying trend is the sharp slowdown in geographic migration. Currently, only wealthy households can afford to migrate in search of better employment opportunities. It increases structural unemployment and deepens inequality.

— Elena Maleev
KPMG Senior Economist

The good news is that economists surveyed predict that 30-year fixed mortgage rates will fall to 6.05% by the end of the year. This is significantly lower than the current interest rate of about 6.5%.

“As our research shows, buyers and sellers alike can gain some peace of mind when average 30-year fixed mortgage rates approach 6% by the end of the year,” Hamrick said.

The lock-in effect will slowly ease

One reason the housing market is so tight is that many current homeowners have mortgage rates near or below 4%, while mortgage rates have been in the 6% to 8% range for the past three years. Many homeowners who bought their homes at the beginning of the decade couldn’t afford to replace their current home at current prices and interest rates. This prevents people from selling, leading to supply constraints. But the farther we get from the low interest rates last seen in the early 2020s, the more common interest rates above 6% will become.

“While the lock-in effect will continue for a long time, the worst of the inventory shortage lock-in is over,” said Lawrence Yun, chief economist at the National Association of Realtors (NAR).

Additionally, Hamrick points out that Freddie Mac’s long-term average interest rate is 7.70%, so current rates are historically consistent. In addition, many markets in the South and West are experiencing increased supply due to new construction, causing home sales prices to decline or remain flat in these markets.

Still, buyers and homeowners continue to face economic headwinds. Even if mortgage rates drop significantly this year, the cost of owning a home will likely continue to rise.

Inflation has returned sharply

Although the Fed never fully returned inflation to its 2% target, conditions were stabilizing and inflation was slowing toward 2026. But with the Iran war and rising global tensions, that may be changing again. On April 10, new consumer price index data showed that the inflation rate in March rose to 3.3%. This was an increase of 0.9% from February and the largest month-on-month increase since June 2022. Moreover, even if this war were to end tomorrow, the rising costs of oil supply disruptions and trade restrictions would likely remain.

But how long will inflation continue to rise? More than 94% of economists surveyed by Bankrate said it could take until at least the end of 2027 for inflation to reach the Fed’s 2% target. Once it reaches a full 44%, it will push further and reach the 2% benchmark by the end of 2028.

For homebuyers and homeowners, these rising costs can trickle down. Home builders, already struggling with declining demand, high tariffs and a shrinking workforce, may be less likely to add construction if costs rise. Homeowners may feel the increase in oil prices on their utility bills, and further market inflation could make home maintenance and upgrades more expensive.

Reasons for cautious optimism

Despite multiple threats to the economy, it is likely to worsen further. After all, even a 34% chance of a recession is still overwhelmingly likely. do not have Happening. Here are some of the reasons economists think there is room for cautious optimism.

• Consumer growth engine: “Consumers remain a consistent growth engine in the U.S.…Consumers are generally stable and leading indicators are pointing to growth,” said Sydel Baker of ITR Economics.
• US energy independence: “The U.S. is a net exporter of oil, so the risk is much lower than in Europe and Asia, which import oil,” said Scott Anderson, chief U.S. economist at BMO Capital Markets.
• Labor market stability: “The labor market is slowing, but not cracking. Employers are holding back on hiring rather than rushing to make large-scale layoffs. This helps explain why job growth is expected to remain modest while the unemployment rate rises slightly,” Hamrick said.

Still, many Americans are feeling the current economic strain in their daily lives. Whether it’s at the grocery store, applying for a job, or trying to pay for housing. But even if the market is at a standstill, everyday life is not. People are still looking for ways to buy, sell, and pay rent.

“Life goes on even if mortgage rates go up and down over time,” Hamrick says. “People move because of marriages, divorces, births, deaths, new jobs, retirement, and all the other real-world changes that shape household decisions.”

It’s easy to see how a more affordable housing market and a healthier job market would enable more people to make big life decisions. Until then, many Americans are paying more for patience and preparedness for when they need to take action.