Fannie Mae ESR Group Expects Higher Mortgage Rates Will Continue to Limit Existing-Home Sales

On Wednesday, the Fannie Mae Economic and Strategic Research (ESR) Group released its January commentary. The Group noted that the recent jump in the 10-year Treasury yield and the resulting rise in mortgage rates are expected to continue to weigh on existing-home sales in the near future, likely keeping them at or near their lowest level since 1995.

The ESR Group’s latest forecast sees mortgage rates closing 2025 and 2026 at 6.5% and 6.3%, respectively, up from the previous forecast of 6.2% and 6.0%.

Additionally, the Group expects home price appreciation to decelerate to 3.5% in 2025, down from 5.8% in 2024. Home price appreciation is likely to vary considerably by location due in part to regional differences in construction activity and the current supply of homes for sale.

While the ESR Group notes that recent economic data point to a strong end for 2024, particularly in the labor market, little change was made to its outlook for economic growth, reaffirming its view for continued-but-slowing real GDP expansion this year. The Group expects 2025 year-total growth will be 2.2%, following predicted final 2024 growth of 2.5%.

In a statement accompanying the report, Fannie Mae Senior Vice President and Chief Economist Mark Palim said:

“While we still see signs of resilience in the labor market, the higher mortgage rates that are associated with a growing economy will likely continue the affordability challenges faced by many potential homebuyers. Due to the ongoing lock-in effect and affordability constraints, we currently expect another year of sluggish existing home sales. A silver lining for affordability is that we also anticipate income growth will outpace both home price and rent growth this year—and in many markets, new homes are now priced competitively with existing homes and are far more available. Otherwise, our expectation that home sales activity will remain limited, combined with the elevated rate environment, reaffirms our view that on a national level the 2025 housing market is shaping up to feel a lot like 2024.”