Mortgage Rate Forecast Raised Amid Cooling Economy and Stubborn Inflation

In a fresh assessment of the U.S. economic landscape, the Federal National Mortgage Association (Fannie Mae) has adjusted its outlook for mortgage rates, signaling a slightly higher borrowing environment through 2025 before a modest decline in 2026.

The government-sponsored enterprise now anticipates the average 30-year fixed mortgage rate to close out 2025 at 6.5%, a nudge up from its earlier prediction of 6.4%. Looking ahead, rates are expected to ease to 6.1% by the end of 2026, reflecting a more tempered path for the housing market amid broader economic headwinds.

Released this week by Fannie Mae’s Economic and Strategic Research Group, the report titled “Economic Developments – August 2025” offers a revised, more cautious view of key indicators, including economic growth, inflation, home sales, and mortgage rates. Led by Senior Vice President and Chief Economist Mark Palim, the analysis highlights how persistent inflationary pressures and slower growth are reshaping expectations for the housing sector.

This shift has prompted downward adjustments in projections for home sales and new mortgage loans, underscoring the challenges facing buyers and lenders in the coming years.

Home sales forecasts have taken a hit, with total units for 2025 now pegged at 4.74 million—a drop from the previous estimate of 4.85 million. The outlook for 2026 follows suit, revised to 5.23 million from 5.35 million earlier. Similarly, mortgage originations are projected to be leaner, coming in at $1.85 trillion for 2025 (down from $1.92 trillion) and $2.26 trillion for 2026 (reduced from $2.34 trillion). These revisions stem from the interplay of elevated mortgage rates and a softer economic backdrop, which could dampen demand and affordability in the real estate market.

At the heart of these changes is a cooler forecast for U.S. gross domestic product (GDP) growth. On a fourth-quarter-over-fourth-quarter basis, 2025 GDP is now expected to expand by just 1.1%, a slight trim from the prior 1.3% projection.

The 2026 estimate has also been dialed back marginally to 2.2% from 2.3%. Accompanying this slowdown is a bump in inflation expectations: The Consumer Price Index (CPI) is forecasted to climb 3.3% in the final quarter of 2025, up from 3.0% previously, while the 2026 figure edges down to 2.6%.

Core CPI, excluding volatile food and energy costs, is anticipated to rise 3.3% in 2025, a small increase from the earlier 3.2% outlook. These metrics paint a picture of an economy grappling with lingering price pressures, potentially influencing Federal Reserve decisions and prolonging higher interest rates.