Federal borrowing, not only monetary policy, is poised to be a central driver of mortgage costs over the next several years, according to an argument advanced by former Treasury Secretary Larry Summers and reported by Realtor.com. With publicly financed deficits pushing up Treasury issuance and the term premium on long-duration debt, Summers contends that long-term yields and mortgage rates will remain elevated unless productivity gains—potentially from rapid deployment of artificial intelligence—materially boost growth and lower borrowing costs.

The practical implication for homebuyers is straightforward: Realtor.com economist Fratantoni projects 30‑year fixed mortgage rates will remain between 6% and 6.5% through at least 2028. Those levels are well above the post‑pandemic lows in 2021–2022 and would curb purchase power for many would‑be buyers. Higher mortgage rates raise monthly payments sharply; every percentage point increase on a typical mortgage raises monthly cost by several hundred dollars on a median loan, squeezing first‑time buyers and reducing the pool of competitive bidders.

Macro mechanisms link deficits to mortgage pricing. Larger federal deficits require more Treasury issuance, which can lift long-term yields either by increasing the supply of bonds or by elevating investors’ expectations for future inflation and policy risk. Mortgage rates, which typically track the 10‑year Treasury yield plus a spread to account for mortgage credit and prepayment risk, move higher as bond yields rise. That sensitivity means fiscal trends can counteract accommodative monetary policy and keep borrowing costs persistently above levels that would stimulate strong housing demand.

The stakes extend beyond immediate affordability. Persistently higher mortgage rates would depress home sales and refinancings, slow construction demand, and could place downward pressure on home price appreciation—alleviating housing inventories in some markets but also undermining household wealth accumulation tied to home equity. Lower turnover would also reduce revenue streams for related industries, from real estate brokerage to building materials, with knock‑on effects for local tax bases.

Policy choices matter. Fiscal consolidation—through reduced spending growth, tax changes, or structural entitlement reform—would lower the projected path of debt issuance and, in theory, reduce upward pressure on yields. Alternatively, a credible, sustained acceleration in productivity driven by technologies such as AI could raise potential GDP, boosting real returns on investment and compressing term premia enough to offset the fiscal impulse. Both paths face political and practical hurdles: major deficit reduction is politically fraught, while the productivity payoff from AI is uncertain, uneven across sectors, and may take years to materialize.

For markets and policymakers, the message is clear. Mortgage rates are not only a function of Federal Reserve policy; the fiscal trajectory and the economy’s capacity to grow sustainably matter. With Fratantoni’s near‑term forecast and Summers’ warning, housing affordability battles are likely to extend into the latter half of the decade unless policymakers enact credible fiscal plans or the economy realizes a faster, broadly shared productivity renaissance.