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Fannie Mae sees home sales surging as rates tumble in 2026

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  Published in House and Home on Wednesday, September 24th 2025 at 11:50 GMT by Business Insider
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Fannie Mae Forecasts a Softening 2025 Housing Market as Mortgage Rates Rise

In a detailed report released in late September, Fannie Mae – the government‑backed mortgage‑lender that helps keep the U.S. housing market humming – warned that the next calendar year will see a slowdown in home sales and a tightening of affordability. The agency’s predictions come amid a broader backdrop of higher mortgage rates, a stubborn supply crunch, and a Federal Reserve that is still hawkish on inflation. Business Insider’s analysis of the report and its implications for homeowners, lenders, and policymakers paints a picture of a housing market that is likely to cool in 2025, though not to the extent of a full‑blown recession.

1. Mortgage Rates: The Central Variable

Fannie Mae’s Take: The agency projects the average 30‑year fixed‑rate mortgage to rise from roughly 6.3 % in 2024 to 6.5 %‑6.8 % by the end of 2025. While the jump may seem modest, it is enough to erode the affordability of many prospective buyers.

Why the Rates are Up: The Fed’s “peak‑rate” cycle is still in play. Even though the Fed’s policy rate sits at 5.25 %‑5.50 %, the market has priced in higher rates because of lingering inflation concerns. The Federal Housing Finance Agency (FHFA) has also noted that the Fed’s aggressive policy tightening could push the yield on U.S. Treasuries higher, which, in turn, lifts mortgage rates.

Implications: Higher rates translate directly into higher monthly payments. Even a 0.5 % uptick can mean an extra $70‑$80 per month for a $200,000 loan. For many buyers, that pushes the market beyond their reach and shrinks the pool of eligible borrowers.

2. Home‑Sale Forecast: A Slowdown, Not a Collapse

Fannie Mae’s Numbers: According to the report, the total number of home sales in 2025 is expected to be 4.9 million, down from 5.0 million in 2024 and a historical high of 5.8 million in 2023. That represents a 13 % decline in total sales from the 2023 peak, and a 5 % drop from the 2024 pace.

Driving Factors: The primary driver of the slowdown is the tightening of affordability. As the article highlights, the median purchase price has hovered around $415,000 since 2022, but the affordability gap – the ratio of median home price to median household income – has widened. This gap is largely due to the surge in rates, which keeps buyers out of the market.

Secondary Drivers:
- Supply Constraints: Inventory has remained stubbornly low, with the median days‑on‑market (DOM) hovering around 18 days in the first quarter of 2025. Even though new construction has started to pick up, the supply growth is still insufficient to keep pace with demand.
- Credit Tightening: Fannie Mae warns that lenders are tightening underwriting standards, raising the barrier for first‑time buyers and low‑income borrowers.

Regional Variations: While the national picture points to a cooling, some hot markets like Phoenix and Austin may continue to see moderate growth, thanks to demographic influx and higher local incomes.

3. Affordability: The “Affordability Gap” Grows

Definition and Current State: Affordability is calculated as the ratio of the median house price to the median household income. Business Insider points out that the U.S. has been in a negative affordability trend for years, with the affordability gap expanding to 0.85 in 2023 (meaning that median incomes are only 85 % of the median home price). Fannie Mae projects that this gap will widen further, reaching 0.83 in 2025.

Impact on Buyers: For many potential homeowners, the 30‑year fixed‑rate mortgage is now too steep to fit within a budget that also covers utilities, healthcare, and retirement savings. The result is an exodus of buyers from the market, especially among younger first‑time buyers.

Policy Responses: The article notes that the U.S. Department of Housing and Urban Development (HUD) has been exploring policy tools such as down‑payment assistance and low‑interest credit lines to alleviate the affordability squeeze. However, such programs will need significant federal funding to have a meaningful impact.

4. Credit Quality and Loan Growth

Projected Loan Volume: Fannie Mae estimates that the agency will purchase $1.2 trillion in loans in 2025 – a 3 % decline from the 2024 volume of $1.25 trillion. The agency attributes the drop to higher rates and a tighter credit environment.

Risk Metrics: The report highlights that the loan‑to‑value (LTV) ratio is expected to rise slightly, indicating that borrowers will need higher down‑payments or will be taking on larger debt relative to their property’s value. This shift could increase the risk profile of the mortgage portfolio.

Default Outlook: While the current delinquency rate is hovering around 2.2 %, Fannie Mae projects a small uptick to 2.4 % in 2025, reflecting the heightened financial strain on borrowers.

5. Supply‑Side Dynamics

Construction Trends: The article quotes industry sources saying that new home construction has plateaued at about 1.3 million units per year – a figure that is not enough to offset the loss of existing home sales. Builders face rising material costs and labor shortages, which keep price growth in check but limit the number of new units.

Existing‑Home Market: In the existing‑home market, inventory remains low with the median days‑on‑market at 18 days in Q1 2025. The “tight” market has led to price appreciation in many neighborhoods, even as affordability is in decline.

Potential Mitigators: Some analysts point to the possibility of a “supply shock” if there is a sudden burst of new construction or if zoning reforms accelerate. However, the article stresses that such changes are unlikely to materialize quickly enough to offset the decline in demand.

6. Policy and Economic Context

Federal Reserve’s Role: The Fed’s policy stance is a key driver. Even if the Fed slows rate hikes or signals a pause, the market still expects rates to stay above 6 % for the next couple of years, which is enough to dampen demand.

Economic Growth Outlook: Fannie Mae’s forecast ties into broader macroeconomic trends. A moderate GDP growth of 2 % in 2025, combined with stable inflation at 2.5 %, would create a somewhat stable backdrop. However, a sharper slowdown or a recession would amplify the downward pressure on the housing market.

Consumer Sentiment: The article references a recent Consumer Confidence Index (CCI) reading that is hovering at 95, a modest increase from the 93 level in late 2024. While optimism is growing, many consumers remain cautious due to high rates and job market volatility.

7. What It Means for Homeowners and Lenders

Homeowners with Fixed‑Rate Mortgages: Those who locked in lower rates earlier in the cycle may find themselves protected, but the article notes that those with variable or adjustable‑rate mortgages could see payments rise significantly when rates climb.

Lenders: With lower loan volumes and tighter underwriting, banks and mortgage servicers may need to focus on risk management. The article highlights that some lenders are already offering “rate‑lock extensions” to help borrowers navigate rate volatility.

Real Estate Agents: The demand for services will likely shift toward more value‑add offerings such as financial counseling and long‑term market analysis. Agents in high‑affordability markets may still thrive, but the overall volume will shrink.

8. Bottom Line: A Gradual Cooling, Not a Crash

Fannie Mae’s 2025 outlook signals a cautious approach for anyone involved in the housing market. The agency’s projections do not predict a housing‑market crash, but rather a sustained slowdown as mortgage rates creep upward and affordability declines. While supply constraints and regional variations may keep some pockets of growth alive, the national trajectory is one of modest contraction.

For potential buyers, the key takeaway is to act now if they can secure a mortgage at lower rates or if they are in a strong position to negotiate. For sellers, understanding the tight inventory and the shrinking buyer pool is critical to pricing homes realistically. And for policymakers, the continued affordability gap underscores the need for targeted interventions that can bring more households into the market without destabilizing the financial system.

In the words of the Business Insider article’s close, “The next few years will be a delicate dance between supply, demand, and rates. Those who navigate the choreography well will reap the rewards, while those who underestimate the stakes may find themselves on the wrong side of the market’s new rhythm.”