Higher Mortgage Rates Likely to Keep Existing Home Sales Near Multi-Decade Lows

Rhea-AI Summary

Fannie Mae's Economic and Strategic Research (ESR) Group forecasts continued housing market challenges in their January 2025 commentary. Due to rising 10-year Treasury yields and increased mortgage rates, existing home sales are expected to remain near their lowest levels since 1995. The ESR Group has revised their mortgage rate projections upward to 6.5% for 2025 and 6.3% for 2026.

Home price appreciation is forecast to decelerate to 3.5% in 2025, down from 5.8% in 2024, with significant regional variations based on construction activity and housing supply. The group predicts real GDP growth of 2.2% for 2025, following an estimated 2.5% in 2024.

While the labor market shows resilience, affordability challenges persist due to high mortgage rates. A positive note is that income growth is expected to outpace both home and rent price increases, and new homes are becoming competitively priced with existing homes in many markets.

Positive

• Income growth expected to outpace home price and rent increases in 2025
• New homes becoming price-competitive with existing homes
• Continued GDP growth projected at 2.2% for 2025
• Labor market showing resilience

Negative

• Mortgage rates revised upward to 6.5% for 2025 and 6.3% for 2026
• Home price appreciation decelerating to 3.5% in 2025 from 5.8% in 2024
• Existing home sales expected to remain at multi-decade lows
• Persistent affordability challenges for potential homebuyers

National Home Price Growth Projected to Decelerate, With Regional Variations Expected 

WASHINGTON, Jan. 22, 2025 /PRNewswire/ -- The recent jump in the 10-year Treasury yield and the resulting rise in mortgage rates are expected to continue to weigh on existing home sales in the near future, likely keeping them at or near their lowest level since 1995, according to the January 2025 commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group. The ESR Group's latest forecast sees mortgage rates closing 2025 and 2026 at 6.5% and 6.3%, respectively, up from the previous forecast of 6.2% and 6.0%. Additionally, the ESR Group expects home price appreciation to decelerate to 3.5 percent in 2025, down from 5.8 percent in 2024. Moreover, home price appreciation is likely to vary considerably by location due in part to regional differences in construction activity and the current supply of homes for sale. 

While the ESR Group notes that recent economic data points to a strong end for 2024, particularly in the labor market, little change was made to its outlook for economic growth, reaffirming its view for continued-but-slowing real GDP expansion this year. The ESR Group expects 2025 year-total growth will be 2.2 percent, following predicted final 2024 growth of 2.5 percent.

"While we still see signs of resilience in the labor market, the higher mortgage rates that are associated with a growing economy will likely continue the affordability challenges faced by many potential homebuyers," said Mark Palim, Fannie Mae Senior Vice President and Chief Economist. "Due to the ongoing lock-in effect and affordability constraints, we currently expect another year of sluggish existing home sales. A silver lining for affordability is that we also anticipate income growth will outpace both home price and rent growth this year — and in many markets, new homes are now priced competitively with existing homes and are far more available. Otherwise, our expectation that home sales activity will remain limited, combined with the elevated rate environment, reaffirms our view that on a national level the 2025 housing market is shaping up to feel a lot like 2024."

Visit the Economic and Strategic Research site at fanniemae.com to read the full January 2025 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive email updates with other housing market research from Fannie Mae's Economic and Strategic Research Group, please click here.

Opinions, analyses, estimates, forecasts, beliefs, and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, beliefs, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, beliefs, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management. 

About the ESR Group
Fannie Mae's Economic and Strategic Research Group, led by Chief Economist Mark Palim, studies current data, analyzes historical and emerging trends, and conducts surveys of consumer and mortgage lender groups to provide forecasts and analyses on the economy, housing, and mortgage markets.

About Fannie Mae
Fannie Mae advances equitable and sustainable access to homeownership and quality, affordable rental housing for millions of people across America. We enable the 30-year fixed-rate mortgage and drive responsible innovation to make homebuying and renting easier, fairer, and more accessible. To learn more, visit:
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SOURCE Fannie Mae

FAQ

What are Fannie Mae's (FNMA) mortgage rate predictions for 2025 and 2026?

Fannie Mae forecasts mortgage rates to reach 6.5% by the end of 2025 and 6.3% by the end of 2026, revised up from previous forecasts of 6.2% and 6.0% respectively.

What is FNMA's projected home price appreciation rate for 2025?

Fannie Mae projects home price appreciation to decelerate to 3.5% in 2025, down from 5.8% in 2024.

How will FNMA's predicted mortgage rates affect existing home sales?

The higher mortgage rates are expected to keep existing home sales at or near their lowest levels since 1995 due to affordability challenges and the lock-in effect.

What is Fannie Mae's GDP growth forecast for 2025?

Fannie Mae's ESR Group forecasts real GDP growth of 2.2% for 2025, following predicted 2024 growth of 2.5%.

How will housing affordability change in 2025 according to FNMA?

While mortgage rates remain high, Fannie Mae expects income growth to outpace both home price and rent growth in 2025, potentially improving affordability for some buyers.