American homebuyers are waiting for the housing market to throw them a bone. Lower mortgage rates, falling home prices — something to make it more affordable to buy a house.
In the Fannie Mae August Housing Forecast, the government-sponsored enterprise (GSE) warned homebuyers that mortgage rates will probably stay high through 2026 and 2027.
As for home prices? Those aren’t expected to plummet either, according to the Fannie Mae Q3 Home Price Expectations Survey (HPES).
Fannie Mae predicts that home prices will gradually climb, with a cumulative price increase of 14.7% over the next five years.
Fannie Mae expects home prices to keep rising through 2030
Fannie Mae does not forecast a national average dollar sales price. To illustrate what its projected price growth could look like in dollar terms, we can apply those percentages to the Federal Reserve’s Q2 2026 average sales price of $502,700.
Fannie Mae predicts the following annual price increases for each of the following five years, from Q3 2026 to Q4 2030:
- 2026: +2.5%
- 2027: +2.2%
- 2028: +2.7%
- 2029: +3.1%
- 2030: +3.3%
Related: Fannie Mae revamps mortgage rate forecast
If we start with the Fed’s average price of $502,700 in Q2 2026, this would put the average home sales price at $575,987 by Q4 2030.
That’s a total increase of around $73,300.
How did home prices get this high?
An average home sales price of $502,700 probably already seems high. And an estimated average of $575,987 — that’s a lot to take in. Especially since the average sales price was $357,900 a decade ago, in Q2 2016, according to the Federal Reserve Bank of St. Louis.
So how did housing prices get this high?
Home sale prices spiked beginning in 2020, when the Covid-19 pandemic hit the U.S. The Federal Reserve slashed the federal funds rate to near zero to help the economy amid furloughs, layoffs, store closures, and lockdowns.
A natural result of the Fed’s slashes was rock-bottom mortgage rates. The average 30-year fixed mortgage rate fell to a record low of 2.65% in January 2021, according to Freddie Mac data.
These low rates boosted buyer competition in the housing market. Increased competition can lead to bidding wars that drive up home sale prices, which in turn raise costs across the rest of the local housing market.
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Fed data shows that the average home sale price was $371,100 in Q2 2020. It jumped to $428,600 in Q2 2021. By Q2 2022, it was $525,100 — higher than today’s average.
Historic housing inflation during the Covid-19 pandemic played a huge part in today’s high home prices.
Home prices have fallen in some markets since the 2022 peak, but the declines haven’t been broad or severe enough to reverse the pandemic-era gains nationwide.
Instead, housing costs are rising more gradually than they were a few years ago.
Annual increases of 2.2% to 3.3% by the end of 2030 may seem grim. However, they’re much better than the 15.5% increase between Q2 2020 and Q2 2021, or the 22.5% spike the year after that.
The housing market is improving, but the price jumps from the early 2020s still impact homebuyer affordability.
What does Fannie Mae’s prediction mean for homebuyers?
So, Fannie Mae predicts that annual home prices will inch up over the next few years. How does that information help people looking ahead to buy a home by the end of 2030?
- Fannie Mae isn’t forecasting a housing crash. Leading up to a housing market crash, home prices usually spike — then nosedive. But since Fannie Mae and other analysts expect prices to gradually increase over the next few years, a housing market crash may not be in the cards.
- You shouldn’t rely on future price cuts. Don’t base your home-buying decision on the assumption that prices will become dramatically cheaper. Instead, buy when the payment is comfortably affordable for you, and take advantage of negotiating power if you’re in a buyer-friendly market.
- You can spend these years building equity. If you can afford to buy a house, buying sooner rather than later gives you the opportunity to build equity over the next few years rather than lose out on the opportunity while values rise.
- You can negotiate for lower prices. Yes, average home prices may rise through 2030. But many U.S. home markets are buyer’s markets, meaning homebuyers have more power than sellers. You could use this advantage to negotiate for a better deal, including a lower home sale price.
Related: Homebuyers face opportunity after housing market news
