Mortgage rates are expected to drop slightly in 2025 and 2026.
Lower mortgage rates could be just around the corner, according to a recent forecast from Fannie Mae. The Government-Sponsored Enterprise has lowered its mortgage rate forecast, now expecting rates to end 2025 at 6.3% and 2026 at 6.2%, both down by 0.3 percentage points from their previous forecast. This adjustment has led to a slight increase in its projection for existing-home sales in 2025, though overall sales expectations remain mostly unchanged. Fannie Mae's updated forecast now anticipates 4.95 million total home sales in 2025, a small bump from the previous estimate of 4.9 million.
Regarding new home sales and construction, there is additional risk to starts stemming from upward pricing pressures related to tariffs on lumber and other materials. The National Association of Home Builders recently estimated the increased costs of lumber and other goods could raise the cost of constructing a typical home by about $10,000. However, lower mortgage rates would also give homebuilders some additional support by not having to offer as steep concessions and rate incentives to drive sales, and the net effect may be to keep homebuilders’ margins steady. As such, we have only made minor revisions to our new home sales and starts outlooks, largely reflecting incoming recent data.Read more
