Fannie Mae forecasts change in mortgage rates, housing market

Fannie Mae’s latest housing forecast now expects 30‑year fixed mortgage rates to stay just above 6% for longer than previously thought, with only modest declines over the next couple of years, and a housing market characterized by slower construction and continued—though decelerating—home price growth.

Mortgage rate outlook

Fannie Mae’s May Housing Forecast projects the average 30‑year fixed mortgage rate at about 6.3% through the rest of 2026, remaining at that level into the first quarter of 2027 before edging down only slightly to around 6.2% thereafter. This is a shift from earlier forecasts that had rates dipping toward 6.1% or even the high‑5% range, meaning the agency no longer expects rates to fall meaningfully below 6% in 2026–2027.

Changes from prior forecasts

In its March forecast, Fannie Mae had projected that mortgage rates could fall to roughly 5.7% by late 2026 and about 5.6% in 2027, based on pre‑shock financial conditions. Subsequent volatility in rates—driven in part by geopolitical events and stickier inflation—made those projections unrealistic, prompting the April and May updates that lifted the expected rate path above 6% throughout the forecast horizon.

Homebuilding and inventory

On the supply side, Fannie Mae still expects single‑family construction to decline in 2026, but the May forecast reduces the severity of that drop from about a 4.2% decline to around 2.4%. However, the rebound previously expected in 2027 has been dialed back dramatically, with projected single‑family housing starts growing by only about 0.4% instead of nearly 2.7%, implying fewer total new homes by the end of 2027 than earlier anticipated.

Home prices and affordability

Fannie Mae’s updated home price index projections show stronger price growth in 2026 than in its prior forecast, with quarterly year‑over‑year gains in the mid‑3% range rather than the low‑to‑mid‑2% range. Together with rates stuck above 6%, this means buyers should not expect sharply lower payments from either falling prices or significantly cheaper financing; instead, affordability improves only gradually, largely through income growth and modestly softer rate and price trajectories.