Fannie Mae has once again revised its housing market forecast, with rising mortgage rates at the forefront of its updated projections. The government-sponsored enterprise now predicts that the average 30-year fixed mortgage rate will hit 6.7% by the end of 2024, up from its previous forecast of 6%. While rates are expected to ease slightly to 6.4% by 2025, affordability will continue to be a challenge, especially for first-time homebuyers, as higher borrowing costs persist.
This upward revision in mortgage rates is the key factor behind Fannie Mae’s updated outlook, which anticipates a decline in home sales to 4.71 million in 2024—down from the previous forecast of 4.77 million. The downward trajectory continues in 2025, with sales expected to dip further to 4.93 million, compared to an earlier estimate of 5.24 million. However, the forecast does point to a modest recovery in the housing market by 2026, with home sales projected to rise to 5.68 million as mortgage rates stabilize and affordability improves.
High mortgage rates have become a significant barrier for homebuyers, particularly as the "lock-in effect" continues to drive homeowners to stay put, unwilling to give up their historically low mortgage rates. As a result, fewer listings are entering the market, exacerbating the inventory shortage that has plagued the housing market for months. Fannie Mae expects single-family mortgage originations to drop, with 2024 origination estimates now pegged at $1.64 trillion—down from $1.67 trillion previously—and $1.94 trillion in 2025, compared to the earlier projection of $2.14 trillion.
While the single-family market faces numerous obstacles, multifamily developers are in a relatively stronger position. Despite the slowdown in the broader housing market, demand for rental housing remains robust, particularly in key markets where supply is limited. Fannie Mae’s forecast for multifamily starts remains solid, with continued rental demand expected to drive developers to build more units. This sustained demand is also likely to keep would-be homebuyers in the rental market longer, helping to support high multifamily occupancy rates.
However, the multifamily sector is not without its challenges. High construction costs continue to climb, driven by both inflationary pressures and supply chain constraints, putting a squeeze on developers’ margins. Tighter lending standards also present a hurdle, potentially slowing the pace of new projects despite growing demand for rental units.
The housing market’s struggles reflect the broader economic environment, which remains strained under the weight of persistent inflation. At 3.7%, inflation continues to contribute to rising construction costs, making it more difficult for developers to build affordably. On the macroeconomic front, GDP growth is forecast to slow to 2.1% in 2024, down from 2023’s stronger performance, with growth expected to decelerate further to 1.8% in 2025.