Fannie Downgrades 2025 Housing, Mortgage Forecasts
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae economists interpret a recent rise in the 10-year Treasury yield as a sign that home sales are far from rebounding from 30-year lows.
In Fannie’s first monthly commentary of 2025, its Economic and Strategic Research Group raised its forecast on where 30-year mortgage rates will land by the end of the year. Fannie now sees rates closing this year at 6.5 percent instead of its previous forecast of 6.2 percent.
“While we still see signs of resilience in the labor market, the higher mortgage rates that are associated with a growing economy will likely continue the affordability challenges faced by many potential homebuyers,” said Mark Palim, Fannie Mae Senior Vice President and Chief Economist. “Due to the ongoing lock-in effect and affordability constraints, we currently expect another year of sluggish existing home sales.”
Forecasting higher mortgage rates this year caused Fannie to downgrade slightly its previous forecast for home sales, despite its prediction that price appreciation will be smaller than in previous years.
Fannie trimmed its total home sales forecast for 2025 to 4.89 million (previously 5.00 million) and for 2026 to 5.25 million (previously 5.47 million). Fannie said home sales will likely remain at or near their lowest level since 1995.
Incorporating an upward revision to the mortgage rate forecast and a downward revision to the home sales outlook resulted in a downward revision of Fannie’s forecast for single-family mortgage originations. The GSE is now predicting originations of $1.92 in 2025. While this is slightly down from previous forecasts, it remains above the estimated $1.69 trillion in originations in 2024.
Fannie also lowered forecasts for refinance originations because of the potentially higher mortgage rates for both 2025 and 2026.
Fannie noted that active inventories in December were up 31 percent from the start of 2024, according to Realtor.com. However, the volume is still 16 percent below December 2019. In addition, the rise in inventory is due to an increase in the time homes are on the market and not by an influx of new listings.
Furthermore, there is shrinking demand among first-time buyers. Fannie cited data from the National Association of REALTORS showing the first-time homebuyer share of purchases fell from 32 percent in 2023 to 24 percent in 2024. Last year’s share was the lowest level since data collection began in 1981.
Many of the above trends vary by region, Fannie reported. Most of the regions with growing inventories of homes for sale are in the Sun Belt and other metros that have seen considerable new homebuilding in recent years. Most regions in the Northeast and Midwest have experienced little improvement in the number of homes available for sale, in part due to a lower infusion of new homes into the housing stock.
Fannie said regions with higher inventories will disproportionately drive increases in home sales, to the extent that sales on a national level increase. However, these regions will also likely disproportionately contribute to the deceleration in home price appreciation. In contrast, tight-inventory regions will likely experience comparatively firmer home price appreciation but also see less improvement in sales transactions this year, as the lock-in effect and more limited new homebuilding continues to suppress the total inventory of homes for sale.
Fannie continues to expect comparatively robust new single-family home sales and construction and have only modestly downgraded both measures because of higher mortgage rates. The economists do expect comparative softening in starts relative to sales, as homebuilders now have a growing inventory of homes for sale and builders need to clear that inventory before ramping up new construction.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
