Fannie Mae expects 30-year mortgage rates to end 2025 at 6.1% and fall to 5.8% by the end of 2026, according to the company’s May economic and housing outlook. In April, the mortgage giant had forecasted that rates would dip to 6.2% by year-end and reach 6% by the end of next year.
Rates have a long way to go to reach the predictions made by Fannie Mae’s Economic and Strategic Research Group. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.81% last week.
The 10-year Treasury note yield is predicted to fall to 4.2% during the second quarter of 2025 and remain near that level for the remainder of the year, according to Fannie Mae. The 10-year yield — which closely correlates to the 30-year mortgage — eclipsed the 4.5% mark this week and touched 4.6% on Wednesday following the news that Moody’s Ratings had downgraded the U.S. government’s long-term issuer and senior unsecured debt ratings.
Fannie Mae also forecasts that the benchmark federal funds rate will remain within its current range of 4.25% to 4.5% until the fourth quarter of this year, when it will fall to around 3.9%. That scenario would involve at least one interest rate cut — and likely two — by the Federal Reserve at its last two monetary policy meetings of the year.
Fannie foresees a corresponding uptick in single-family home sales as mortgage rates fall. The company now expects sales to reach 4.92 million units this year, up from its April prediction of 4.86 million units. Mortgage originations are expected to rise to $1.99 trillion in 2025 and $2.38 trillion in 2026, up from previous forecasts of $1.98 trillion this year and $2.33 trillion next year.
Those rosy housing predictions stand in stark contrast to recent comments by Michael Esienga, CEO of First American Properties, who cited a combination of rising home inventory and declining pending sales as signs that the U.S. housing market may be facing a correction.
“When we examine historical patterns of housing downturns, the trajectory we’re on aligns closely with previous deep national corrections,” Eisenga said in a press release Tuesday.
Among key economic indicators, Fannie Mae expects real gross domestic product (GDP) to grow 0.7% in 2025 and 2% in 2026, up from 0.5% and 1.9% in its last forecast.
Fannie’s research group left its consumer price index (CPI) outlook unchanged, with expectations that it will rise 3.5% between the fourth quarter of 2024 and the fourth quarter of 2025. However, core CPI, which excludes food and energy costs, was revised downward by 10 basis points, with Fannie now expecting 3.8% growth by the fourth quarter.
