It looked like existing-home sales were primed to rise in 2025, but the prospect of higher-than-expected mortgage rates are driving down expectations.
Fannie Mae on Thursday issued revisions to its 2025 housing market forecast, dropping its estimated gain for existing-home sales next year from 11% to a more muted 4%. The government-sponsored enterprise cited the recent rise in mortgage rates for its revision.
“We expect inventories of homes added to the market, and therefore sales of existing homes, to remain subdued through next year, as the higher mortgage rate environment is likely to strengthen the ongoing lock-in effect,” Mark Palim, Fannie Mae’s senior vice president and chief economist, said in a statement.
“How these competing forces balance out is currently an open question, but for now we continue to expect affordability to remain the primary constraint on housing activity through our forecast horizon.”
Fannie Mae’s previous expectation was that mortgage rates would dip below 6%, which would open up inventory and boost sales. Instead, Fannie Mae now believes mortgage rates will end 2025 at 6.3% and remain above 6% through 2026.
In this scenario, elevated mortgage rates would keep homeowners who bought houses at rates of 4% or below out of the housing market, as they will continue to be reluctant to give up more favorable rates. In turn, this would keep for-sale inventory low.
The good news is that Fannie’s initial 2026 forecast calls for a 17% rise in existing-home sales and ongoing strength in new-home sales.
While expectations for the housing market are getting more bearish, the October existing-home sales report from the National Association of Realtors (NAR) is a ray of hope that sales may have finally reached a bottom. Sales in October rose 2.9% year over year, the first annualized gain since July 2021. Still, sales clocked in at a seasonally adjusted annual rate of just under 4 million.
It’s reasonable to expect mortgage rates to remain elevated. The election of Donald Trump has raised fears among economists that if he follows through on his promise of huge tariffs on foreign goods, it would reignite inflation and force the Federal Reserve to reconsider interest rate cuts that the market has been taking for granted.
While the extent to which Trump is serious is unclear, he proposed at various points in the 2024 campaign tariffs as high as 10% on all foreign goods, 60% on Chinese goods and 100% on Mexican goods. China and Mexico are two of the three largest trade partners of the United States. Fannie Mae’s forecast does not directly take into account any potential policy changes from the Trump administration.
Fannie’s forecast is more optimistic than the one HousingWire released last week. HousingWire Lead Analyst Logan Mohtashami and Altos Research President Mike Simonsen, the authors of the forecast, project existing-home sales to rise 5% next year.
HousingWire’s forecast of 4.2 million existing-home sales is considerably lower than Fannie’s estimate of 4.9 million. HousingWire’s number is more in line with the Mortgage Bankers Association (4.3 million) and Goldman Sachs (4.2 million). NAR projects existing-home sales to hit 4.9 million in 2025.
Fannie’s forecast for existing-home sales in 2026 is 5.7 million, which is tied to the expectation of lower mortgage rates.
