The average rate for a 30-year will remain well above 6% for the near-future and existing-home sales will remain muted due to high home prices and lack of affordability, a report from Fannie Mae forecasts.
The recent jump in the 10-year Treasury yield and the resulting rise in mortgage rates are expected to continue to weigh on existing home sales in the near future, likely keeping them at or near their lowest level since 1995, according to the report from Fannie Mae’s Economic and Strategic Research (ESR) Group.
The group expects that the average rate for a 30-year will close 2025 at around 6.3%, down from 6.5% in 2024. These figures have been upgraded from the group’s previous forecast.
The ESR Group expects home price appreciation to decelerate to 3.5% in 2025, down from 5.8% in 2024. The firm notes that home price appreciation is likely to vary considerably by location due in part to regional differences in construction activity and the current supply of homes for sale.
In terms of GDP, the ESR Group predicts year-total growth in 2025 will be 2.2%, following predicted final 2024 growth of 2.5%.
“While we still see signs of resilience in the labor market, the higher mortgage rates that are associated with a growing economy will likely continue the affordability challenges faced by many potential homebuyers,” says Mark Palim, senior vice president and chief economist for Fannie Mae, in a statement. “Due to the ongoing lock-in effect and affordability constraints, we currently expect another year of sluggish existing-home sales.”
“A silver lining for affordability is that we also anticipate income growth will outpace both home price and rent growth this year — and in many markets, new homes are now priced competitively with existing homes and are far more available,” Palim says. “Otherwise, our expectation that home sales activity will remain limited, combined with the elevated rate environment, reaffirms our view that on a national level the 2025 housing market is shaping up to feel a lot like 2024.”
Photo: Wolfgang Hasselmann