When the Federal Reserve began cutting interest rates in September, most economists anticipated a corresponding drop in mortgage rates.
Though initial forecasts predicted that mortgage rates would fall below 6% by the end of 2025, ongoing political and economic uncertainty coupled with volatile financial markets have kept rates elevated.
Fannie Mae has repeatedly adjusted its projections to account for Fed policy changes, inflation trends, housing sentiment, and overall market conditions.
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In recent months, the organization has revised its mortgage rate forecast through 2026, this time offering a more optimistic outlook for the market. The latest adjustment may be enough to restore homebuyer confidence and revive housing sales.
Homebuyers may see mortgage rates dip below 6% in the near future providing the reassurance needed to encourage buyers that have been waiting on the sidelines.
A young family in their new home. High mortgage rates and rising home prices have locked many homebuyer out of the housing market. However, Fannie Mae expects housing conditions to improve this year.
Image source: Shutterstock
Fannie Mae expects mortgage rates to dip below 6% next year
After months of rising inflation fears, economic uncertainty, and volatile financial markets, Fannie Mae raised its mortgage rate expectations considerably, estimating rates to reach 7% by the end of 2025.
However, increased housing inventory and improved GDP forecasts have painted a more optimistic picture of the housing market this year.
In its May 2025 Economic and Housing Outlook, Fannie Mae revised its mortgage forecast, anticipating rates to reach 6.1% by the end of this year, and 5.8% by the end of 2026. Homebuyers waiting for rates to finally dip below 6% for the first time in years may finally be ready to take the plunge.
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Fannie Mae’s Home Purchase Sentiment Index also improved in April for the first time since 2024, perhaps an indication of a rebounding housing market. Though buyer sentiment is down year-over-year, the recent boost shows promise of an improved housing market in the year ahead.
As sellers warm to housing conditions and inventory continues to rise, Redfin expects buyers will be incentivized by greater negotiating power and lower home prices.
Home sales will increase as inventory rises and buyers regain leverage
Economists expect home prices to drop 1% year-over-year by Q4, as sellers continue to outnumber buyers. To correct the housing market imbalance corrects itself, sellers will continue to lower home prices to draw buyers back.
Though experts anticipate the strongest buyer’s market since 2013, housing prices in markets with consistently strong demand, such as the Northeast and the Midwest.
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Still, improved homebuyer sentiment, lower mortgage rates, and home price reductions may be the perfect combination to boost housing sales. Three-quarters of all buyers are holding off on purchasing a home until mortgage rates and home prices both fall.
Fannie Mae also adjusted its home sales forecast to reflect improving market conditions, raising projected housing sales to 4.92 million, up from 4.86 million last month.
If all housing factors advance as expected, the years-long housing market gridlock may finally resolve itself.
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