Fannie Mae revised its expectations for mortgage rates and home sales this year, offering a brighter outlook for the U.S. housing market.
Economists at the mortgage giant — responsible for buying loans from banks — forecast a total of 4.92 million home sales in 2025, according to the May economic outlook they released Wednesday. That's higher than April's forecast, but still lower than March's, when the team predicted 4.95 million sales this year.
Even so, 4.92 million sales would still be a 3.6% increase compared to 2024, the economists said.
Lowered mortgage rate expectations were the main driver behind the revision in sales, economists said.
In reports earlier this year, the team forecast that the 30-year, fixed-rate mortgage average could end 2025 as high as 6.8%. Now, that figure has been revised to 6.4%, the lowest expected average yet this year.
The relationship between mortgage rates and existing home sales has been top of mind for housing market insiders. Within the past five years, mortgage rates have swung from 2.6% to more than 7%. As a result, homeowners with lower mortgage rates have been hesitant to sell their houses, tying up the supply of existing homes and limiting options for buyers.
But economists have suggested that if mortgage rates ease, homeowners could be motivated to move, freeing up inventory and boosting the sale of existing homes.
For example, at the end of last year, when Fannie Mae’s forecast for mortgage rates was higher, chief economist Mark Palim suggested, “heightened mortgage rate volatility may present opportunities for would-be homebuyers to take advantage of temporary lows, and we may see stretches where housing activity is boosted by lower rates.”
That said, economists at Fannie Mae expect 4.24 million of the total sales to be of pre-owned, or existing, homes, up 4.4% from 2024’s actual figure. May’s forecast marks the highest expectation for the existing homes market in 2025.