Look for the 30-year mortgage interest rate to have a volatile 2025, as it bounces up and down before settling a little above 6%.

That is one of the five predictions for next year’s housing market from the Fannie Mae Economic and Strategic Research Group. Fannie Mae’s economists forecast that affordability issues and the “lock-in effect,” in which homeowners who want to sell stay on the sidelines because of their current low interest rates, will keep housing activity subdued in the coming 12 months.

On a more positive note, the economists expect the broader economy to “remain on solid footing” and expand at an above-trend pace through 2026 as it works through inflationary pressures and heightened policy uncertainty.

The predictions include only a modest drop in interest rates next year as sticky inflation and a stable job market lowers interest-rate expectations for 2025. Unless the economy slows considerably, Fannie Mae’s economists expect interest rates to remain elevated, with bouts of volatility. Through the year it will move downward toward 6%. Overall economic growth and employment gains are expected to slow modestly and for core inflation also to slow, but not reach the Federal Reserve’s target of 2% until 2026.

Existing home sales will reach about 4.25 million in 2025, up 4.8% from 2024’s expected sales pace of 4.06 million units. However, that number is still down 20.3% from 2019 levels. An increasing home inventory is expected to modestly increase sales next year. But affordability issues and the lock-in effect will continue to restrain activity.

With a limited supply of existing homes, look for new home sales to continue to be a bright spot for the industry. New home sales averaged an annualized sales pace of 682,000 this year through October. That is higher than the average annual sales pace of 595,000 between 2015 and 2019. The economists expect a similar trend in 2025.

Home price growth will slow next year, with year-over-year prices up about 3.6% in 2025, compared to 5.8% in 2024. This slowdown may allow annual wage growth to be greater than price appreciation, making homes more affordable.

In the multifamily sector, the economists expect below-average rent growth of between 2% and 2.5% in 2025 as more properties come onto the market. Next year should be the second consecutive year of nominal rent growth, easing affordability issues for tenants.