Fannie Mae ESR Group Releases February Commentary

On Thursday, the Fannie Mae Economic and Strategic Research (ESR) Group released its February commentary.

According to the ESR Group, incoming gross domestic product (GDP), labor market, and inflation data point to an economy that entered 2025 with strong momentum. While the Group’s GDP outlook is unchanged at 2.2% Q4/Q4 in 2025, it revised upward its expectations for the Consumer Price Index, which is now forecast to end 2025 at 2.8% on a year-over-year basis (2.5% previously), primarily due to recently higher-than-expected inflation readings.

Further, the ESR Group incorporated the recently implemented 10% additional tariff on imports from China into its February forecast; it expects the tariffs will have a small negative impact on growth and put slight upward pressure on inflation. However, the Group notes that current risks to the outlook are higher than normal due to uncertainty around trade policy, including additional tariff proposals.

The ESR Group now expects mortgage rates to end 2025 and 2026 at 6.6% and 6.5%, respectively, upward revisions from its prior outlook. The Group notes there are plausible scenarios for both upward and downward movement in mortgage rates due to trade policies, but its expectations for mortgage rate volatility this year remains intact as markets react to trade policy announcements, incoming economic data, and other fiscal policy changes.

Additionally, the ESR Group made modest upward revisions to its existing-home sales outlook for 2025 due to a stronger-than-expected December sales pace and resilient purchase applications data, but it notes that the level of existing sales is still expected to be 22% below the pace seen in 2019.

In a statement accompanying the report, Fannie Mae Vice President of Multifamily Economics and Strategic Research Kim Betancourt said:

“Economic growth was strong to start the year as fourth quarter personal consumption data came in above our expectations. Going forward, we expect the economy to decelerate slightly as consumer spending slows to a level more consistent with its historical relationship to income. However, ongoing uncertainty around trade policy adds risk to our GDP and inflation outlooks, which may have implications for mortgage rates, although the direction—up or down—would depend on a number of factors. Higher mortgage rates would exacerbate the existing ‘lock-in effect’ and worsen affordability, which may then weigh on home sales and mortgage originations activity. Of course, if mortgage rates move lower, we’d likely see an improvement in affordability and a corresponding pickup in housing activity.”