Fannie Mae released updated economic projections on Wednesday indicating total single-family mortgage originations could fall well below $2 trillion next year.

The forecasts show a dramatic revision from September across multiple fronts.

Fannie now projects mortgage rates for typical 30-year loans will average 7.5% through the end of next year, compared to prior-month forecasts of 6.7%.

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The government-sponsored mortgage investor has also significantly increased its forecast for 10-year Treasury yields to which mortgage rates are closely linked.

According to the latest forecast, Fannie projects 10-year yields will end 2026 around 5.3%, compared to 4.8% projected in September. Yields on the 10-year are forecast to stay around 5.3% until the end of 2027.

After forecasting in September that single-family originations would total about $2.12 trillion in 2026 and $2.28 trillion in 2027, Fannie now projects respective production totals of $2.08 trillion and $1.86 trillion — a more than 18% reduction for next year.

That reflects a 2.8% reduction in previously forecast purchase volumes to $1.43 trillion in 2027, and a more than 46% reduction in projected refinances to just $430 billion.

Months of surging yields on U.S. government debt since the Iran war began in late February have caused mortgage rates to spike, eroding mortgage demand. Inflation has reaccelerated in 2026 due to the energy supply shocks, Trump administration tariffs and massive spending on artificial intelligence.

Though existing-home sales remain at the 30-year lows where they’ve been for four straight years, the Federal Reserve raised interest rates in September and additional tightening is widely expected to be necessary to combat inflation further. The federal funds rates currently sits in a target range of 3.75% to 4% after the quarter-point hike in September.

Fannie had forecast in September that the effective fed funds rate would increase to 4.1% in the first quarter and hold that level through the remainder of 2027. The firm now forecasts a fed rate of 4.3% in the first quarter rising to 4.4% through the rest of the year, implying the Fed will execute two quarter-point increases from current levels.

Steadily rising borrowing costs have triggered significant deterioration in mortgage outlooks through the course of this year, according to top housing economists. Average rates for typical 30-year mortgages have hovered around 7.5% over the past two weeks, according to the Mortgage Bankers Association (MBA).

Those higher rates are “making their mark” on the housing and mortgage sectors, the MBA said during its annual conference in Chicago earlier this week. The MBA expects mortgage rates to hover between 7% and 7.5% through the end of 2027.