Latest forecast predicts lower mortgage rates and a surge in home sales through 2026
Fannie Mae has revised its predictions for mortgage rates slightly downward from previous forecasts, according to a press release issued on Thursday.
The forecasted rate for the end of 2025 is 6.4%, down by 0.1% from the previous call of 6.5%. At the end of 2026, Fannie Mae predicts rates will be at 6.0%, a decrease of 0.1% from the 6.1% in the previous outlook.
Interest rates are front and center in the news as the Federal Reserve prepares for its July meeting next week. Betting markets are anticipating a rate hold once again, with CME FedWatch putting the chance of a cut at just 2.6%. The markets still expect two rate cuts over the remainder of 2025, with the next one anticipated in September.
Another rate hold will probably intensify the pressure on the Fed and its chair, Jerome Powell. President Donald Trump and FHFA director Bill Pulte have been calling for both lower rates and the resignation of Powell.
Both Trump and Powell are scheduled to visit the Federal Reserve this afternoon. According to CNBC, this is the first time in nearly 20 years that a sitting president will visit the central bank.
There has been much discussion about what the Federal Reserve should do. Some mortgage brokers are eager to see life after Powell, with the potential of significant rate cuts. However, some economists have warned that an overly aggressive rate cut could harm the economy. Others are concerned about damaging the central bank's independence, which could have ripple effects on the global economy.
Sales price increases slow
Another piece of good news from the Fannie Mae outlook is the continued slowing growth of home prices. The revised forecast predicts that home prices will grow 2.8% by the end of 2025, down from the previously expected 4.1%. Home prices in 2026 are forecasted to jump 1.1%, down from the 2.0% in the last outlook.
With prices slowing their growth, the forecasted home sales have increased. Fannie Mae now predicts 4.85 million sales in 2025, up from the previously forecasted 4.82 million. Home sales in 2026 are projected to reach 5.35 million, up from the previous forecast of 5.25 million.
This forecast comes despite the National Association of Realtors’ (NAR) latest report, released Wednesday, which showed a 2.7% decrease in existing home sales. Lawrence Yun, NAR chief economist, cited ongoing affordability and rate challenges.
Existing home sales in the U.S. fell in June as home prices reached another all-time high, creating a challenging environment for hesitant buyers.https://t.co/JCARJUAhdi
— Mortgage Professional America Magazine (@MPAMagazineUS) July 23, 2025
“High mortgage rates are causing home sales to remain stuck at cyclical lows,” Yun said. “If the average mortgage rates were to decline to 6%, our scenario analysis suggests an additional 160,000 renters becoming first-time homeowners and elevated sales activity from existing homeowners.”
In conjunction with the jump in home sales, mortgage originations forecasts are also higher. The forecast for 2025 is now $1.92 trillion, up from $1.90 trillion in the last outlook. Originations in 2026 are forecasted at $2.34 trillion, up from the previously reported $2.26 trillion.
Less inflation, less growth
There was mixed news in the forecasts for inflation and gross domestic product (GDP). Inflation projections are slightly lower than a month ago. The consumer price index (CPI) is expected to rise 3.0% year-over-year in Q4, down from the June forecast of 3.2%. The forecast for 2026 is an increase of 2.7%, down from the previous outlook of 2.8%.
Core CPI is expected to rise 3.2% year-over-year, down from 3.3% in the June forecast. The 2026 forecast of a 2.7% increase remains unchanged.
Fannie Mae is forecasting less economic growth in 2025 than previously predicted, and a slight increase in 2026. The GDP growth outlook for 2025 is 1.3%, down from the 1.4% forecast in June. For 2026, the forecast is 2.3%, a slight increase from the June prediction of 2.2%.
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