Fannie Mae predicts major mortgage rate shift

To fully understand the current state of the U.S. housing market, it’s essential to consider several major economic developments over the past few years.

In 2022, inflation surged dramatically, prompting the Federal Reserve to raise the federal funds rate in an effort to curb consumer spending by making loans and credit more costly.

This assertive monetary strategy aimed to bring inflation down from its peak of 9% toward the Fed’s long-standing target of 2%. By late 2024, inflation had gradually eased, leading the Fed to pivot and begin reducing interest rates.

However, contrary to widespread predictions that mortgage rates would dip below 6% in response, they instead rebounded, climbing back toward 7%.

Related: Redfin bluntly explains mortgage rate, housing market headache

Ongoing economic uncertainty, erratic market behavior, and lingering inflationary forces have kept mortgage rates elevated. This has cooled the housing market, discouraging both prospective buyers and current homeowners from making moves.

On Sept. 17, the Federal Reserve enacted a quarter-point cut to the federal funds rate, adjusting it from a 4.25%–4.5% range down to 4.0%–4.25%.

This marked the first rate decrease since December 2024, driven by mounting concerns about softening job numbers and persistent inflation. Fed officials have indicated that further rate cuts could be considered later in 2025.

Given this backdrop, government-sponsored enterprise Fannie Mae reports on a change coming soon for mortgage rates and other key data points in the U.S. housing market and economy in general.

Fannie Mae forecasts mortgage rate drop

Fannie Mae’s Economic and Strategic Research (ESR) Group, led by Senior Vice President and Chief Economist Mark Palim, delivers data-driven insights aimed at helping to guide decision-makers in the housing and mortgage sectors.

The group says it hopes to inform industry choices through its in-depth forecasts, surveys, and analytical studies.

In its October 2025 Economic and Housing Outlook, Fannie Mae included a change in its mortgage rate prediction for 2025 that is likely to be welcomed as good news for people looking to buy and sell homes.

"We forecast mortgage rates to end 2025 and 2026 at 6.3 percent and 5.9 percent, respectively, compared to 6.4 and 5.9 percent in our prior forecast," the company wrote.

More on homebuying:

• Zillow warns Americans on housing market, mortgage worry
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• Fannie Mae forecasts mortgage rate shakeup

It also included a note about its outlook for home sales.

"Our total home sales outlook for 2025 was revised to 4.74 million, up from 4.72 million previously," Fannie Mae reported. "Our 2026 home sales projection is 5.16 million, unchanged from prior forecast."

The ESR is widely viewed as a reliable source of economic intelligence, offering perspectives on the trends and forces influencing the broader economy and housing landscape. Its work reaches a wide range of stakeholders, including consumers, lenders, investors, and policymakers.

Fannie Mae predicts house prices, new mortgages

Fannie Mae also included updates to its forecasts for house prices and single-family mortgage originations.

• In a quarterly update to its house-price forecast, the government-sponsored enterprise reported that it expects home price growth to be 2.5 percent and 1.3 percent in 2025 and 2026, respectively, on a fourth-quarter year-over-year basis — compared to 2.8 percent and 1.1 percent in our prior forecast.
• Fannie Mae projects single-family mortgage originations to total $1.88 trillion and $2.35 trillion, respectively, for 2025 and 2026, compared to its previous forecast of $1.85 trillion and $2.32 trillion, respectively.

Fannie Mae adjusts GDP, CPI expectations

Fannie Mae also released the following forecasts for the broader U.S. economy.

• We have revised our real gross domestic product (GDP) growth outlook for 2025 and 2026 to 1.9 percent and 2.3 percent on a Q4/Q4 basis, respectively, compared to 1.5 percent and 2.1 percent in our prior forecast.
• We forecast the Consumer Price Index (CPI) to be 2.9 percent Q4/Q4 in 2025, down from our September projection of 3.1 percent. The outlook for 2026 is 2.7 percent (up from 2.6 percent previously). Core CPI is expected to be 3.1 percent Q4/Q4 in 2025 (down from 3.2 percent previously) and 2.6 percent in 2026 (down from 2.7 percent previously).

Related: Zillow sounds alarm on worrying housing market, mortgage concern