Here’s what Fannie Mae’s economists expect for 2025

Fannie Mae’s Housing Market Forecast for 2025: Modest Growth and Persistent Challenges

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The housing market in 2025 is expected to see a mix of modest improvements and lingering challenges, according to Fannie Mae’s Economic and Strategic Research Group. Economists predict the 30-year fixed mortgage rate will fluctuate throughout the year before stabilizing slightly above 6%.

One of the primary obstacles for the market will remain affordability and the “lock-in effect.” Homeowners with existing low mortgage rates are likely to hold off on selling, which will keep overall housing activity subdued over the next year.

Despite these challenges, Fannie Mae’s experts are optimistic about the broader economy. They anticipate steady economic growth extending into 2026, supported by a resilient job market and progress in addressing inflation, though policy uncertainties remain.

Interest Rates and Economic Outlook

Interest rates are projected to experience minimal decline in 2025 due to persistent inflation and robust employment trends. Unless the economy experiences a notable slowdown, mortgage rates will likely remain elevated, though slightly trending downward toward 6% by the end of the year. Core inflation is expected to gradually ease but may not align with the Federal Reserve’s 2% target until 2026.

Home Sales Forecast

Existing home sales are expected to reach approximately 4.25 million units in 2025, reflecting a 4.8% increase from the estimated 4.06 million sales in 2024. However, this figure remains significantly lower—by about 20%—than 2019 pre-pandemic levels. Modest improvements in inventory may provide a slight boost to sales, but affordability constraints and the lock-in effect will continue to limit growth.

New Construction and Home Prices

With existing home inventory constrained, new home sales are projected to remain a strong point in the market. So far, 2024 has averaged an annualized sales pace of 682,000 new homes, surpassing the 2015-2019 average of 595,000. A similar performance is anticipated in 2025.

Home prices, meanwhile, are expected to rise at a slower pace next year. Prices are forecasted to increase by 3.6% year-over-year in 2025, compared to a 5.8% gain in 2024. This deceleration could create an opportunity for wage growth to outpace price appreciation, improving overall affordability.

Multifamily Market Trends

In the multifamily sector, rent growth is expected to remain below average, with projections between 2% and 2.5% for 2025. As more rental properties enter the market, nominal rent growth should provide tenants with some relief for the second consecutive year, further alleviating affordability pressures.

In summary, while housing market activity may show gradual improvement next year, ongoing affordability concerns, mortgage rate volatility, and the lock-in effect will remain key factors shaping the landscape for buyers, sellers, and renters alike.

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