Written by: Internal Analysis & Opinion Writers
Fannie Mae has scaled back its housing and mortgage market projections, issuing a more conservative outlook in its latest Economic & Housing Forecast. The update reflects a recognition that elevated interest rates, affordability constraints, and slowing economic momentum are likely to weigh on both home sales and price growth through the remainder of 2025 and into 2026.
The agency now expects total home sales—including both new and existing homes—to reach 4.74 million units by the end of 2025, down from 4.85 million forecasted just a month earlier. For 2026, projections have also dipped, with total sales expected to hit 5.23 million, a downgrade from the prior 5.35 million estimate.
This cooling view is accompanied by upward revisions in mortgage rate expectations. The average 30-year fixed mortgage rate is now forecast to remain higher for longer, reaching 6.7% in the fourth quarter of 2025. That’s a slight increase from the earlier estimate of 6.5%. For 2026, Fannie Mae projects a gradual easing, but even by year-end, rates are only expected to fall to 6.1%.
The outlook for home prices is also more muted. The updated forecast now anticipates just 2.8% annual home-price growth in 2025, a sharp downgrade from the 4.1% estimate previously published. By 2026, that growth is expected to slow even further to 1.1%, revised from 2.0%.
These adjustments come amid broader caution about the pace of economic expansion. Real GDP growth expectations have been lowered slightly to 1.1% for the fourth quarter of 2025, down from 1.3%. However, the outlook for 2026 has improved slightly, nudging from 2.3% to 2.2%, as the economy is projected to stabilize.
On the inflation front, Fannie Mae now sees consumer prices rising 3.3% year-over-year by the end of 2025, up from the previous estimate of 3.0%. The 2026 CPI projection is slightly lower at 2.6%, suggesting price pressures may ease but remain sticky. Core CPI, which strips out food and energy, is forecast to rise 3.2% in 2025 and 2.7% in 2026.
For borrowers, the implication is clear: mortgage rates are likely to remain elevated through the end of 2025, limiting affordability and potentially sidelining many would-be buyers. For lenders, a slower pace of home sales and tepid price growth may also translate to weaker origination volumes and compressed margins.
Fannie Mae’s economists noted that while the labor market remains resilient and consumer spending has held up, the lingering effects of high rates are becoming more visible. New construction starts have softened, and existing home inventories remain tight, further constraining transaction volume.
The GSE’s updated forecast also signals that the mortgage market may not see the kind of rate-driven refinancing boom that followed previous Fed easing cycles. With fewer borrowers positioned to benefit from refinancing at current levels, purchase originations will likely remain the main focus through at least mid-2026.
Overall, the forecast underscores a more measured outlook for housing. While the market is not in retreat, it is showing signs of fatigue after several years of aggressive price gains and shifting economic dynamics. The slow path to lower mortgage rates, combined with structural supply issues, suggests a market that will require patience—and adaptability—from all players.
