Fannie Mae Forecasts Mortgage Rates Below 6% and Rebound in Home Sales
Homebuyers may soon see a surprising shift in the housing market. When the Federal Reserve began cutting interest rates in September, most economists anticipated a corresponding drop in mortgage rates. Though early forecasts expected mortgage rates to fall below 6% by the end of 2025, continued political and economic uncertainty, along with volatile financial markets, have kept rates high.
Fannie Mae has continuously revised its projections to account for changes in Federal Reserve policy, inflation trends, housing sentiment, and market conditions. In its most recent revision, the organization offered a more hopeful outlook that could help restore buyer confidence and revitalize housing sales.
Fannie Mae Sees Rates Dropping Below 6% by 2026
After months marked by rising inflation fears and economic instability, Fannie Mae had previously estimated mortgage rates would hit 7% by the end of 2025. But stronger GDP forecasts and increased housing inventory have led to a shift in projections.
In the May 2025 Economic and Housing Outlook, Fannie Mae revised its forecast, predicting mortgage rates to hit 6.1% by the end of this year and drop to 5.8% by the end of 2026. This could finally be the reassurance many buyers have been waiting for.
“Homebuyers waiting for rates to finally dip below 6% for the first time in years may finally be ready to take the plunge.”
Adding to the optimism, Fannie Mae’s Home Purchase Sentiment Index improved in April—the first time since 2024. While year-over-year sentiment remains down, this uptick signals promise for the housing market in the coming year.
Buyer Confidence Grows as Inventory Rises
As more sellers enter the market, inventory is increasing, and with it comes buyer leverage. According to Redfin, this shift could incentivize buyers with greater negotiating power and lower home prices.
Economists anticipate a 1% year-over-year drop in home prices by Q4, as sellers begin to outnumber buyers. In order to rebalance the housing market, sellers are expected to lower home prices to attract reluctant buyers.
“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 [may remain higher].”
Still, a combination of lower mortgage rates, improved buyer sentiment, and declining home prices could prove just the boost the market needs.
Housing Sales Forecast Raised
Fannie Mae has also updated its home sales forecast to reflect these improving conditions. It now projects housing sales to reach 4.92 million, an increase from last month’s 4.86 million estimate.
“If all housing factors advance as expected, the years-long housing market gridlock may finally resolve itself.”
With more favorable mortgage rates, increased inventory, and sellers adjusting to the new landscape, 2025 may mark the beginning of a rebound in the housing sector.
