Mortgage rates expected to close 2025 at 6.5%
Fannie Mae’s latest forecast indicates that rising mortgage rates, fueled by an increase in the 10-year Treasury yield, will likely keep existing home sales at their lowest levels since 1995 throughout 2025.
The company’s Economic and Strategic Research (ESR) Group expects mortgage rates to close 2025 at 6.5%, up from previous projections of 6.2%.
In addition, home price growth is expected to slow, dropping from 5.8% in 2024 to 3.5% in 2025.
Despite a strong labor market at the end of 2024, the ESR Group has made only minor revisions to its broader economic outlook.
The group continues to predict a slowdown in real GDP growth, with a 2.2% increase projected for 2025, compared to a forecast 2.5% for 2024.
Fannie Mae’s senior vice president and chief economist Mark Palim explained that while the labor market remains resilient, higher mortgage rates will likely keep homeownership out of reach for many buyers.
"Due to the ongoing lock-in effect and affordability constraints, we currently expect another year of sluggish existing home sales," said Palim.
He also noted that income growth is expected to outpace both home price and rent increases in 2025.
"A silver lining for affordability is that we also anticipate income growth will outpace both home price and rent growth this year — and in many markets, new homes are now priced competitively with existing homes and are far more available. Otherwise, our expectation that home sales activity will remain limited, combined with the elevated rate environment, reaffirms our view that on a national level the 2025 housing market is shaping up to feel a lot like 2024,” Palim added.
Regional differences in home prices are expected due to varying construction activity and supply levels across markets.
However, overall, the ESR Group predicts that 2025 will largely mirror the conditions of 2024, with limited home sales and ongoing affordability challenges.
Do you think the housing market will improve in 2025, or will affordability issues and high mortgage rates continue to restrict home sales? Share your thoughts in the comments.
