Revised outlook signals cooling buyer enthusiasm as mortgage rates stabilize above 6%
Fannie Mae's Economic and Strategic Research Group scaled back its home sales expectations in the latest forecast, a move that reflects mounting caution about the market's momentum heading into the new year.
The mortgage giant now projects home sales will increase 7.3% in 2026, down from 8.9% predicted in October and 9.2% in September.
The revised figure sits well below the National Association of Realtors' forecast of a 14% jump, marking a significant divergence between the two major forecasters.
The United States housing market could finally be poised for a comeback in 2026, with the National Association of REALTORS (NAR) projecting a 14% surge in existing-home sales after a stagnant 2025.https://t.co/vKZugrGwE4
— Mortgage Professional America Magazine (@MPAMagazineUS) November 17, 2025
Rate stabilization dims purchase activity
The pullback stems partly from mortgage rate expectations. Fannie Mae predicts the 30-year fixed-rate mortgage will average 6.2% in the first quarter of 2026 before declining to 5.9% by year-end.
Despite these forecasts, rates have stabilized in the 6% range following summer declines. Current rates averaging 6.26% have capped much of the buyer enthusiasm that emerged earlier when rates fell from 7% lows.
Home price growth is expected to decelerate sharply. The Fannie Mae Home Price Index is forecast to rise just 1.3% in 2026, from 2024's 4.4% increase and 2025's projected 2.5% growth.
Slower price appreciation could unlock additional demand next year, but the pace remains constrained by affordability pressures that have persisted throughout 2024 and 2025.
Construction activity remains under pressure
Housing starts are forecast to decline 2.5% next year, extending a two-year slump.
Construction activity has remained under pressure despite quarterly fluctuations, signaling builders' caution about demand fundamentals and lot availability constraints.
Refinance volume to surge as rates fall
Single-family mortgage originations tell a different story. Fannie Mae expects originations to surpass $1.88 trillion in 2025 before climbing to $2.34 trillion in 2026.
Refinance volume is projected to command 36% of the 2026 origination market, up from 26% this year and 21% in 2024. The shift reflects borrowers' push to secure lower rates as the 30-year mortgage falls toward the 5.9% baseline.
The forecast underscores a market in transition. Buyer demand remains dampened by affordability constraints despite moderating price growth, while refinance activity stands poised to capture a larger share of origination volume.
For mortgage professionals, the divergence between home sales projections and mortgage origination volumes signals opportunity in a market where rate-conscious borrowers take precedence over purchase transactions.
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