Mortgage rates, home prices improve in Fannie Mae forecast

Fannie Mae's latest economic and housing outlook reflects more positive expectations.

The government-sponsored entity notably lowered its mortgage rate expectations for the end of the year to 6.3% from 6.4% in its previous outlook, while its 2026 fourth quarter forecast remained the same at 5.9%. A quarter-over-quarter drop to 6.3% from 6.6% would mark the first decrease since the third quarter of last year.

The revisions came just before the Federal Open Market Committee meeting on Wednesday, during which the federal funds rate is expected — by several economists including First American Senior Economist Sam Williamson — to see another cut. 

"The Federal Open Market Committee [FOMC] is widely expected to lower the federal funds rate by 25 basis points at its October meeting, mirroring September's move," said Williamson. "This cut would bring the target range to 3.75–4.00 percent, marking another step toward a more neutral policy stance as the Fed navigates a landscape clouded by uncertainty."

Fannie Mae's report updated its house price forecast, now expecting home price growth to hit 2.5% and 1.3% in the fourth quarters for this and next year, respectively, compared to 2.8% and 1.1% in its prior forecast.

The outlook for total home sales improved as well. Fannie expects 4.74 million total sales by the end of the year, up from 4.72. The 2026 projection sits at 5.16 million, unchanged from the previous forecast.

Likewise, single-family mortgage originations increased for 2025 and 2026 to $1.88 trillion and $2.35 trillion from $1.85 trillion and $2.32 trillion, respectively.

How Fannie's economic outlook changed

Fannie revised its real gross domestic product growth and consumer price index expectations in the forecast as well.

It anticipates GDP growth to improve this and next year, marking it at 1.9% and 2.3%, respectively, compared to 1.5% and 2.1% in the prior forecast. After the GDP shrunk in the first quarter of this year, and then spiked up to near 4% growth in the second quarter, Fannie expects it to mellow out around 2% over the next year.

Fannie forecasted the CPI to fall 0.2 percentage points from September's estimate to 2.9% this quarter, although it increased its 2026 outlook to 2.7% from 2.6%. The entity expected core CPI to fall 0.1 percentage points in both periods, though, to 3.1% and 2.6%, respectively.