Fannie Mae’s research arm expects the long slide in mortgage rates to continue at a measured pace, projecting an average of about 6.4% by the end of 2025 and a move below 6% in 2026. The updated view, published in September, reflects easing inflation pressures and a softer growth outlook. It also acknowledges that affordability remains tight and sales gains are likely to be gradual rather than dramatic.
What The Forecast Says
Fannie Mae’s Economic and Strategic Research Group trimmed its rate path versus prior months, calling for 30-year fixed rates to end 2026 near 5.9%. The group also outlined a housing rebound that unfolds over multiple years: total new and existing home sales are seen rising in 2025 and again in 2026, still short of pre-pandemic norms but a step up from recent lows. The updated track aligns with early October readings that showed mortgage rates drifting back into the low 6% range.
Why A Sub-6% Handle Matters
A rate that starts with a 5 carries both optical and practical importance for would-be buyers and move-up sellers. Optically, a five-point-something rate feels meaningfully different after two years when 6 to 7% was the norm. Practically, lower rates widen the pool of qualified borrowers and reduce monthly payments enough to bring some sidelined households back into the market. Still, the projected path implies a slow drift, not a sudden break lower, so demand is likely to thaw in phases.
Affordability Hinges On Prices As Well As Rates
Rates are only half of the affordability equation. Home values have cooled but not cracked, with national measures indicating modest year-over-year gains and only slight recent declines. That type of appreciation keeps equity cushions intact but offers limited relief to first-time buyers facing high entry costs. If mortgage rates grind lower while price growth stays contained, purchasing power should improve more noticeably in 2026 than in 2025.
Inventory And The Lock-In Effect
Supply remains a key constraint. Millions of owners still hold mortgages far below current levels, making them reluctant to list and trade into a higher rate. A shift toward sub-6% rates should ease that lock-in effect, but only incrementally. Fannie Mae’s sales projections reflect this reality: transactions rise, yet the market does not snap back to pre-2022 turnover. Builders could help fill the gap if financing costs for construction and buyers both improve, though labor and lot availability remain challenges in many metros.
Refinancing: From Trickle To Stream
Refinancing volumes tend to accelerate once rates fall enough to open a meaningful savings window for a critical mass of borrowers. With the average 30-year fixed still above 6% in October, the refinance opportunity set is expanding but remains limited compared with the 2020 to 2021 boom. The forecast path suggests that a more robust refinance tailwind would arrive alongside the sub-6% prints expected in 2026, supporting loan production and potentially easing servicing pressures as delinquency risks stay contained.
Macroeconomic Backdrop And Risks
The outlook assumes inflation continues to cool and economic growth remains subdued but positive. A slower economy tends to pull long-term yields and mortgage rates lower, but sharper-than-expected weakness could undercut buyer confidence and income growth, limiting the benefit from cheaper financing. Conversely, if inflation stalls or re-accelerates, rates could plateau above 6% for longer, delaying the sub-6% milestone. The September update nudged the inflation outlook slightly lower for 2025, an adjustment that supports the gentler rate trajectory, but risks around energy prices and supply frictions persist.
What Buyers And Sellers Can Do Now
For buyers targeting a purchase in the next year, today’s market offers a trade-off: more negotiating room than during the pandemic frenzy, but still constrained supply in many neighborhoods. Locking a rate with a float-down option, considering temporary buydowns, or exploring lender credits can help bridge the gap while waiting for further declines. Sellers considering a move may find that small rate improvements in the coming quarters expand the potential buyer pool, especially at entry-level price points. Keeping listing timelines flexible to align with seasonal rate dips could also prove beneficial as the market adjusts.
What This Forecast Means for Borrowers
Fannie Mae’s call for an average near 6.4% by late 2025 and a move below 6% in 2026 suggests the mortgage market is on a slow path back toward more typical borrowing costs. Combined with stable to cooling home prices, that path should gradually improve affordability and lift sales from current lows. The transition will likely be uneven, with local inventories and macro conditions shaping outcomes market by market. For now, the low 6% readings seen in October align with the trajectory, and the industry is preparing for a steady, not sudden, turn in housing momentum.
