Fannie Mae ESR Group Revises Its Housing Market Outlook for 2025

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

The Group now expects existing-home sales to increase only 4.0% next year from a 2024 pace that is on track for a nearly 30-year low. The downward revision to the existing-home sales outlook (previously forecast to rise 11.0% in 2025) is the result of significant upward movement in mortgage rates and other long-duration bonds in recent weeks. Whereas previously the ESR Group had expected mortgage rates to dip below 6.0% in early 2025, the revised forecast now shows mortgage rates ending 2025 at 6.3% and remaining above 6.0% through 2026.

The ESR Group does expect a significant improvement in existing-home sales of around 17.0% in its inaugural 2026 forecast, as affordability conditions improve, the lock-in effect weakens, and pent-up demand to move materializes. Furthermore, the Group continues to expect new-home sales to improve on already-robust levels in both 2025 and 2026, as homebuilders continue to offer buyers incentives to move existing inventories.

The ESR Group’s economic growth outlook is little changed this month, with minor upward revisions to near-term growth in personal consumption. Its 2026 GDP forecast sees the economy continuing to grow near its long-run trend rate of about 2.2%. Of note, the Group now expects core inflation—for which further progress has largely stalled in recent months—to remain elevated in the near term. This is offset somewhat by the expectation for lower oil prices due to recent movements in oil markets and a softer global demand outlook, which will likely work to keep topline inflation measures below core inflation through 2025. The ESR Group expects core inflation to return to the Fed’s 2.0% target by 2026Q2, but it now expects somewhat less monetary policy easing in 2025 than previously forecasted.

Adding background and analysis to the report, Fannie Mae Senior Vice President and Chief Economist Mark Palim said:

“Long-run interest rates have moved upward over the past couple of months following a string of continued strong economic data and disappointing inflation readings. To the extent that the recent run-up in rates has been driven by market expectations of stronger economic growth, we think this bodes well for the labor market outlook and home purchase demand. However, we expect inventories of homes added to the market, and therefore sales of existing homes, to remain subdued through next year, as the higher mortgage rate environment is likely to strengthen the ongoing lock-in effect. How these competing forces balance out is currently an open question, but for now we continue to expect affordability to remain the primary constraint on housing activity through our forecast horizon.”