Housing Market Unlikely to Thaw Soon: Fannie Mae

(Illustration courtesy of Fannie Mae)

Affordability and the so-called “lock-in effect” will likely keep housing activity subdued in 2025, according to the Fannie Mae Economic and Strategic Research Group.

In a new Commentary, Fannie Mae economists forecast existing home sales forecast will move only slightly upward from recent multi-decade lows.

Meanwhile, the broader economy should remain on solid footing and expand at an above-trend pace through 2026 “as it navigates elevated core inflationary pressures and heightened policy uncertainty,” Fannie Mae said.

The commentary includes five predictions for the housing market in 2025:

Average mortgage rates will decline modestly but remain above 6 percent, with likely bouts of volatility.

Existing homes sales will remain near 30-year lows, but location matters.

New home sales will remain a bright spot in the housing market (where they can be built).

National home price growth will decelerate.

Multifamily housing will remain in a holding pattern.

“From an affordability perspective, we think 2025 will look a lot like 2024, with mortgage rates above 6 percent, home price growth easing from recent highs but staying positive, and supply remaining below pre-pandemic levels,” said Mark Palim, Fannie Mae Senior Vice President and Chief Economist. “Still, heightened mortgage rate volatility may present opportunities for would-be homebuyers to take advantage of temporary lows, and we may see stretches where housing activity is boosted by lower rates — but, on average, we expect mortgage rates to remain elevated and a hindrance to activity.”

Palim noted Fannie Mae foresees the current affordability crunch hampering activity through our forecast horizon, “[but] we expect nominal wage growth will outpace home price growth for the first time in more than a decade in 2025, slowly but surely providing some much-needed relief to potential homebuyers.”