Fannie Mae has revised its forecasts for mortgage interest rates and housing sales for 2025 through 2026.

The Government Sponsored Enterprise (GSE) lowered its expectations for existing home sales to 4% next year, from its previous forecast of 11%. Fannie Mae’s downward revision is based on increased mortgage rates and other long-duration bonds over the past two weeks. The 2024 market pace is trending toward a 30-year low.

The volume of existing home sales is predicted to increase to 17% in 2026, when affordability conditions are forecast to improve, the lock-in effect weakens, and pent-up demand builds.

New home sales are forecast to continue their upward trajectory in  2025 and 2026, supported by homebuilder incentivizing for existing inventory.

Mortgage rates were expected to drop below 6% in early 2025, but Fannie Mae’s revised forecast now projects rates above 6% through 2026.

The Mortgage Bankers Association (MBA) paints a less encouraging picture, with a 2025 year-end rate of 6.60%.

There are many similar predictions from reliable sources, but over the next two years, there are sure to be many economic conditions impacting these numbers, which we expect to change more than once.

At the time of the market crash in 2008, the 30 yr mortgage interest rate was not much different than its average between September 2024 and today. So if rates were similar when buyers and sellers were highly active in the market, why the slowdown this year?

One word: Prices.

Inflation’s effect on prices for many goods and services, combined with DC home price increases and nearly two years of mortgage rate increases took a toll on the real estate market. Home buyers are reeling from price fatigue, and fearful of economic uncertainty leading into 2025.

Fannie Mae calculations indicate that in order for 2016 – 2019 affordability levels to return, one of three things, or a combination of them, would need to occur:

• A 38% drop in the median sales price of single-family homes
• An increase of more than 60% in U.S. median household income to $134,500.
• A reduction in the 30 year fixed mortgage rate to 2.35% from its current level

None of these things, or a combination of them, is likely to occur in the short term, if at all.

Markets will be closed Thursday for Thanksgiving, with bond markets closing early at 2 p.m. EST on Friday. Here’s what we can expect in the way of economic news leading up to the holiday:

• PCE Inflation data for October
• Third-quarter GDP
• November Fed meeting minutes
• Consumer confidence data
• Housing market data

Compass is the #1 real estate brokerage in the nation and a leader in real estate technology.