What Fannie Mae's new rate outlook means for originations

Mortgage rate projections have shifted notably higher in the past month, adding to origination challenges in a market where housing demand is wavering, according to Fannie Mae.

Previous forecasts suggested long-term mortgage rates would average around 6.3% going into 2027, but now they're on track to be as much as half of a percentage point higher.

The shift in the government-sponsored enterprise's outlook adds to growing concern about upward pressure on long-term bond yields as Fannie lowers its single-family origination projections another notch.

"Mortgage rates just hit 6.7%, their highest level in a year, and our data shows weekly contract activity slipping," Mike Miedler, president and CEO of Century 21 Real Estate, said in an emailed press statement.

The latest Fannie Mae forecast now suggests the annual growth rate for industry mortgage originations has fallen from almost $2.3 trillion to nearly $2.17 trillion.

Refinance volume represented nearly half or 48% of originations in the first quarter, but it has fallen just 25% since July. 

That said, Fannie Mae projects the refinance share could be back up to 34% by the fourth quarter.

Mixed signals

Miedler said some indicators point to the possibility homebuyers will get some rate relief but it's far from certain.

"The backdrop hasn't shifted yet, and that's something I'm watching closely. Inflation improved a little last month but it's still running high, while the job numbers are likely not weak enough to force a cut by the Fed," he said.

Home mortgage forecasts more than a year ahead are highly subject to change, but so far Fannie is forecasting that 2027 could bring more annual growth in originations after the first-quarter's seasonal weakness passes.

While the most recent revision to the rate forecast represents a challenge for mortgage businesses in a market where demand for homes is less than solid, some of the latest shifts in Fannie Mae's housing projections are positive for lenders.

The government-sponsored enterprise boosted its 2026 forecast for single-family housing starts up by 3,000 compared to the previous month's estimate in a move that may reflect some marginal improvement in builder sentiment.

In addition, Fannie's unchanged annual home price index forecasts stability with housing values appreciating 2.3% this year.

However, the GSE lowered its projections for other single-family housing indicators on Monday in a move that turned out to be in line with slower pending home sales figures released Tuesday.

"Because pending sales reflect signed contracts for existing homes, not closed transactions, they offer an early read on existing-home sales activity over the next month or two," Sam Williamson, senior economist at First American, said in an emailed press statement.

Fannie lowered its existing home sales estimate for 2026 to a little under 4.11 million units from closer to 4.13 million. The GSE reduced its new home sales projection from 637,000 to 632,000.

While origination is getting tougher, lenders generally have been profitable so far in 2026, with the Mortgage Bankers Association reporting on Tuesday that the average company earned $973 on each loan originated in the seasonally-strong second quarter.

The second quarter is on track to be the best period for originations this year with $558 billion in total single-family volume, according to Fannie. However, the reduced origination projections for the third and fourth quarters are in the same ballpark at $530 billion and $538 billion, respectively.