Mortgage rates play a major role in the affordability crisis fueling housing market gridlock.Â
When rates surged in 2022, home buyers and housing experts predicted a temporary rise. However, elevated rates have remained constant over the past three years.
As consumers pause house hunting hoping for housing market improvements, housing sales have been stagnant.
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Economists expect that lower mortgage rates and large-scale affordable housing construction are the keys to unlocking the current market stalemate, but both may be difficult to achieve anytime soon.
Lower mortgage rates would directly increase buyer demand and new house listings from sellers, but economic challenges and general uncertainty are keeping rates sticky.
Fannie Mae has updated its mortgage rate forecast for the next two years in keeping with the sluggish housing market.
A young family in their new home. High mortgage rates and rising home prices have locked out many first-time home buyers from the housing market.
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Mortgage rates will take longer than anticipated to drop
After a decade of stable, sub-5% mortgage rates, rates began to spike in 2022 and have yet to bounce back to previous levels.
And though 2025 was initially expected to relieve home buyers with lower mortgage rates, experts now predict that rates will not drop meaningfully over the next two years.
Fannie Mae recently revised its mortgage rate forecasts for 2025 and 2026 in light of stubborn inflation and sticky mortgage rates.
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The housing organization now expects 30-year fixed mortgage rates to average 6.8% this year, up from the 6.6% projection announced last month. 2026 mortgage rates are expected to show minor improvement, dropping to 6.5%.
This may not provide the reassurance many home buyers need to take the plunge and enter the housing market.
47% of Americans note that mortgage rates would have to dip below 5% in order for them to be comfortable buying a home. Yet, almost half of home buyers believe that mortgage rates will stay elevated for the foreseeable future.
The combination of rising home prices and elevated mortgage rates may continue to make the housing market challenging for buyers to navigate.
Fannie Mae predicts only one Fed interest rate cut this year
Just as mortgage rate projections have been revised, anticipated interest rate cuts from the Fed have also been updated. When the Fed announced its first interest rate cut in several years in September, its plan for bringing the federal funds target rate down showed several rounds of interest rate cuts throughout 2025 and 2026.
However, as inflation creeps back up, the likelihood of several interest rate cuts this year becomes more unlikely.
Related: The White House will take surprising approach to curb mortgage rates
CME FedWatch lists the probability of another interest rate cut at the Fed’s March meeting at only 4.5%, and experts predict that interest rates will likely stay flat for most of 2025.
Fannie Mae also revised its interest rate cut forecast for the year ahead. The federal funds rate will now only be cut by 0.25% once this year, which is estimated to occur following the September Fed meeting.
While interest rates and mortgage rates are loosely linked, the upward revision in mortgage rates and interest rates indicates that buying conditions will remain difficult over the next few years.
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