Fannie Mae cuts outlook for 2025–26 home sales

Fannie Mae's August mortgage origination forecast predicts lower volume in 2025 and 2026 compared with July as the government-sponsored enterprise moved its rate expectations higher.

It now expects total home sales to decline year-over-year. Fannie Mae is still looking for existing home sales to rise, but not by as much previously expected. The drop off in new home sales is deeper than in the July forecast.

The forecast was compiled prior to the July housing starts release on Aug. 19 from the U.S. Census Bureau. The month had 1.428 million housing starts and 1.415 million completions.

Housing starts were 5.2% above the revised June estimate and 12.9% over the July 2024 rate. But single-family starts were just 2.8% higher than the revised June data.

"Despite a modest uptick after four-month streak of declines, single-family permits — a leading indicator of future construction — remain near their lowest level since March 2023, signaling continued weakness in the sector," Odeta Kushi, deputy chief economist at First American Financial, said in a commentary. "The housing market remains structurally undersupplied, and we need more hammers at work to build the homes that are still in short supply."

What Fannie Mae predicts for home sales

Those issues likely underpin the August Fannie Mae forecast for 4.74 million seasonally adjusted total home sales, down 0.1% from 2024.

New home sales of 654,000 units on a seasonally adjusted annual rate, is 4.7% lower compared with last year.

In the July forecast, Fannie Mae looked for 4.85 million SAAR total home sales this year, a 2.2% gain and 676,000 SAAR new home sales, a 1.5% decline from 2024.

The home sales projection for next year is for 5.23 million SAAR units, compared with the previous forecast of 5.35 million.

How mortgage rates will move through the end of 2026

The 30-year fixed rate mortgage is now predicted to average 6.7% for the current quarter and 6.5% by the end of the year; the July forecast called for 6.5% and 6.4% respectively.

In the first quarter of next year, the rate is expected to be 6.4% (compared with 6.2% in the July outlook) and fall to 6.1% by the fourth quarter (compared with 6%).

Last Thursday's Freddie Mac Primary Mortgage Market Survey found the 30-year FRM at 6.58%, the lowest since October. But based on movements in the 10-year Treasury in the interim, which closed on Monday 10 basis points higher than on Aug. 13, mortgage rates could pick back up.

This year is now expected to end with $1.852 trillion of volume, of which $1.386 trillion is for home purchases and $466 billion consists of refinancings. In July, the forecast was for $1.921 trillion total volume, with $1.409 trillion of purchase loans and $511 billion refis.

How Fannie Mae views economic growth going forward

Among the other items Fannie Mae revised downward is gross domestic product. For this year's fourth quarter, the growth outlook now calls for a 1.1% increase, compared with 1.3% in the July forecast; for 2026, GDP is expected to end the year now at 2.2%, versus 2.3% one month ago.

Inflation, as measured by the Consumer Price Index, will be hotter in 2025 than previously expected. Fannie Mae expects it to rise 3.3% year-over-year in the fourth quarter, up from 3% in the July forecast.

But for 2026, its CPI outlook calls for 2.6%, down from 2.7%.