Back in 2022, when inflation started climbing fast, the Federal Reserve responded by raising interest rates in hopes of slowing down consumer spending. While that helped cool off inflation, it also caused mortgage rates to spike—making it harder for people to buy or sell homes. The result? A sluggish housing market, with many would-be buyers and sellers sitting on the sidelines.
Things started to look up in late 2024 as inflation dropped from over 9% to nearly 2%, giving the Fed enough confidence to begin cutting rates. Many hoped this would lead mortgage rates to dip below 6%. But instead of falling, they crept back up toward 7%, catching both economists and home shoppers off guard.
Now, with ongoing economic ups and downs, shifting market sentiment, and uncertainty around Federal Reserve policy, experts at Fannie Mae have adjusted their outlook. Their updated forecast predicts some relief ahead: mortgage rates could ease to 6.4% by the end of 2025 and drop further to 6.0% by the close of 2026. While those numbers aren’t drastically lower, they offer a glimmer of hope in what’s been a tough market.
There’s also cautious optimism that a possible rate cut later this year—potentially as soon as the Fed’s September meeting—could improve both financial markets and homebuyer confidence. And with housing inventory on the rise, it’s possible that mortgage rates could start to feel a bit more manageable again.
In addition to slightly lower rates, Fannie Mae is projecting a small boost in home sales over the next two years. The outlook for 2025 has been raised slightly, and 2026 is expected to bring even more growth, suggesting that more buyers might return to the market if conditions improve.
However, prices are still a sticking point. Home values have roughly doubled since 2010, and many first-time buyers are struggling with high down payments and monthly costs. The good news? Home price growth is expected to slow considerably. Instead of climbing quickly, prices are projected to rise modestly—around 2.8% in 2025 and just 1.1% in 2026. That’s slower than previous forecasts and could help keep the market from overheating.
If mortgage rates come down and home prices level off, it could open the door for more buyers—especially those waiting for a break. While sellers may not love the idea of smaller price increases, a more balanced market could be just what’s needed to get things moving again.