Housing Market Faces Challenges as Mortgage Rates Bite: Fannie Mae

Fannie Mae’s Economic and Strategic Research (ESR) Group highlights significant challenges in the housing market in their January 2025 commentary. Existing home sales are anticipated to remain at their lowest levels since 1995 because of high mortgage rates and the rise in U.S. 10-year Treasury yields. The ESR Group has updated their mortgage rate projections for 2025 and 2026, increasing them to 6.5% and 6.3%, respectively. 

Home price appreciation is expected to decelerate to 3.5% in 2025, compared to 5.8% in 2024. Regional disparities are expected, with variations driven by construction activity and housing supply levels. Additionally, the ESR Group anticipates real GDP growth of 2.2% in 2025, following an estimated 2.5% growth in 2024. 

The labor market’s resilience provides a foundation for economic stability, but affordability challenges remain prominent due to persistently high mortgage rates. On a positive note, income growth is projected to outpace increases in both home and rental prices, offering some relief to households. New homes are becoming more competitively priced compared to existing homes, particularly in markets where new construction is more active. 

“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,” said Mark Palim, Fannie Mae SVP and chief economist.