Mortgage giant revises outlook for this year and next
Fannie Mae’s Economic and Strategic Research Group predicted that 30-year mortgage rates will fall to 6.4% by the end of 2025 and drop further to 5.9% by late 2026.
The group’s September outlook also called for a rebound in home sales and a rise in single-family mortgage originations, with the share of refinances expected to grow from 26% in 2025 to 35% in 2026.
The recent drop in rates has already triggered a wave of refinancing. Freddie Mac’s latest Primary Mortgage Market Survey showed the average 30-year fixed mortgage rate falling to 6.26% as of September 18—the lowest since October 2024.
Nearly 60% of mortgage applications last week were for refinances, the highest share since January 2022, according to the Mortgage Bankers Association (MBA).
Overall applications surged nearly 30%, with adjustable-rate mortgages (ARMs) making up about 13% of all loan activity—the largest proportion since 2008.
Broader market trends and challenges
Despite the recent relief, the housing market continues to face headwinds. Sales of previously owned homes fell last year to their lowest level in nearly three decades and have remained sluggish in 2025 as rates hovered above 6.5%.
While lower rates may spur some activity, analysts cautioned that most homeowners remain locked into lower rates, limiting the pool of potential sellers and keeping inventory tight.
The ESR Group projected new and existing home sales to total 4.72 million in 2025 and 5.16 million in 2026, with single-family mortgage originations expected to reach $1.85 trillion and $2.32 trillion, respectively.
The refinance share is forecasted to rise as rates fall, but the overall market remains sensitive to Treasury yields and further Fed policy decisions.
Fed policy and bond market drive rate outlook
The late-summer slide in rates followed a drop in long-term US Treasury yields and growing expectations of Federal Reserve rate cuts. The Fed delivered a quarter-point cut last week and left the door slightly open to more reductions by year-end, citing concerns about the US job market. However, industry experts warned that further declines in mortgage rates are not guaranteed.
“I keep telling people the Fed cutting rates doesn't mean that mortgage rates will go down. Mortgage rates move on economic data, and the bond market is now saying, ‘Ho hum, basically...’ The door is not wide open for many more cuts. Certainly not a bigger cut than a quarter-point cut,” Melissa Cohn, regional vice president of William Raveis Mortgage, told Mortgage Professional America.
Meanwhile, Michele Lawrie, a veteran in real estate, said 6% is a crucial benchmark for mortgage rates, often emphasized by agents and industry leaders.
The National Association of Realtors estimated that lowering rates to 6% could make homeownership possible for 5.5 million more US households.
HomeAbroad calculated that buyers would save around $57 per month, or $685 a year, if rates dropped to that level.
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