Written by: Internal Analysis & Opinion Writers
Fannie Mae’s Economic & Strategic Research (ESR) Group has revised its expectations for mortgage rates and housing activity, offering a more tempered view of the market’s recovery path.
In its September outlook, the ESR team now projects the average 30-year fixed mortgage rate to fall to 6.4% by the end of 2025 and further down to 5.9% by the close of 2026. This is a slight improvement over previous estimates, which anticipated 6.5% by the end of 2025 and a drop to just 6.1% in 2026.
Despite recent signs of momentum in the mortgage market—where some lenders are quoting 30-year rates as low as 6.55%—Fannie Mae believes much of the expected improvement is already reflected in the current pricing. The revised forecast suggests that any further declines in rates are likely to be modest and spread out over time.
The updated projections come as part of a broader shift in housing and economic expectations. While the economy has shown resilience, with labor markets and consumer spending remaining relatively strong, housing affordability remains a major constraint. Fannie Mae’s new outlook adjusts for those headwinds by emphasizing a slower pace of rate relief.
Total mortgage originations are still expected to rise, reaching \$1.85 trillion in 2025 and growing to \$2.32 trillion in 2026. Purchase originations are holding steady, but refinance activity is expected to pick up slightly, now forecast to comprise 26% of total volume in 2025 and 35% in 2026.
Fannie Mae also trimmed its home sales forecast. It now expects 4.72 million total home sales in 2025, down slightly from its earlier 4.74 million projection. For 2026, the estimate has been revised from 5.23 million to 5.16 million. Meanwhile, housing starts are expected to remain below historical norms, with just 1.345 million new units projected for 2026.
The ESR Group made modest changes to its broader economic forecast as well. Gross domestic product (GDP) growth is now expected to be 1.5% in Q4 2025, up from 1.1%, and 2.1% in 2026. Inflation projections have also been nudged down slightly, with year-end 2025 CPI expected at 3.1% (from 3.3%) and core inflation at 3.2%. Inflation estimates for 2026 remain unchanged: 2.6% for CPI and 2.7% for core.
The forecast also highlights a key psychological threshold for the housing market—6%. According to the ESR team, rates approaching or falling below this level could help awaken sidelined buyer demand. However, the path toward sustained affordability is likely to be slow and gradual, as broader economic uncertainties and global factors continue to influence investor sentiment and mortgage spreads.
For mortgage lenders, real estate professionals, and borrowers, the takeaway is clear: expect a moderate and measured recovery. While rates are expected to decline, they are unlikely to return to the ultra-low levels seen during the pandemic. As a result, strategy and flexibility will be essential in navigating the next phase of the housing cycle.
