Fannie Mae eyes sub-6% mortgage rates in 2026

Fannie Mae forecasts the 30-year fixed-rate mortgage to fall below 6% by the end of 2026, a 50 basis point decrease from its 2025 projection, potentially driving single-family mortgage originations past $2 trillion. Despite this anticipated rate decline, Fannie Mae revised down its total home sales forecasts for 2025 and 2026, with existing-home sales in 2025 expected to remain near 30-year lows. Concurrently, the agency updated its broader economic outlook, raising its 2025 GDP growth projection to 1.5% and lowering its 2025 CPI forecast to 3.1%.

Analysis

Fannie Mae's latest forecast presents a nuanced outlook for the U.S. housing market and broader economy, characterized by improving financing conditions but persistently sluggish sales activity. The projection for the 30-year fixed-rate mortgage to fall below 6% by year-end 2026, a significant drop from the 6.4% anticipated for year-end 2025, is a key positive driver. This anticipated rate decline is expected to push single-family mortgage originations past the $2 trillion mark in 2026, a substantial increase from the $1.68 trillion in 2024 and an estimated $1.85 trillion in 2025. However, this surge in origination value appears disconnected from transaction volume. Fannie Mae has revised its total home sales forecasts downward for both 2025 (to 4.72 million units) and 2026 (to 5.16 million units), indicating that lower rates may primarily fuel refinancing activity rather than a robust recovery in home sales. Critically, the forecast suggests existing-home sales in 2025 will remain below the 30-year low of 4.06 million recorded in 2024, signaling that affordability and inventory challenges will likely persist. The macroeconomic backdrop supports this disinflationary trend, with the 2025 CPI forecast lowered to 3.1% and the 2026 outlook stable at 2.6%, while GDP growth is expected to be 1.5% in 2025 and 2.1% in 2026.

Key Decisions for Investors

• Investors should consider an overweight position in mortgage originators and servicers, as the forecast for originations to surpass $2 trillion by 2026 suggests a significant revenue tailwind from refinancing activity.
• Maintain a cautious or neutral stance on companies directly tied to home sales volume, such as homebuilders and real estate brokerages, given the downward revisions to sales forecasts and the expectation that existing-home sales will remain near 30-year lows through 2025.
• The combination of moderating inflation and steady GDP growth supports a favorable environment for fixed-income investments and reinforces the potential for a 'soft landing' scenario, which could reduce long-term risk for broader equity portfolios.