Fannie Mae predicts a 6.1% 30-year fixed mortgage rate by the end of 2026, along with other good news for buyers.
Fannie Mae's August Housing Forecast brings good news for first-time home buyers. Fannie, a government-sponsored enterprise, has its name on many of America's most popular mortgages.
The forecast covers the current quarter through the end of 2026.
What's the Good News?
After a particularly rough Covid and post-Covid period, Fannie expects the housing market to finally start to improve. Most of the changes to the forecasts are fairly small, but they're heading in the right direction.
Mortgage rates
Fannie's economics team expects mortgage rates to average 6.7% in the current quarter. It then expects them to gently drift lower almost every quarter, ending 2026 at 6.1%. As an annual average, those rates are expected to drop to 6.2% next year from 6.7% in 2025.
That may not be the vertical plummet down to COVID-era lows that first-time buyers dream of, but it's much better than the generally rising mortgage rates we've seen over the last 18 months.
Home prices
Fannie reckons home price rises are likely to slow. It still expects a rise of 3.1% (annualized) this quarter. But it predicts continuing descent in the next five. It records a 4.8% increase in 2024, but forecasts 2.8% this year and a 1.1% in 2026.
Again, this isn't in dream-come-true territory. But most potential homeowners will likely see their incomes rise more quickly than home prices next year, assuming Fannie is right.
Housing inventory
Housing starts (new construction projects) fell in 2024 and 2025 for single-family homes. But that trend is expected to reverse next year with a modest rise.
It's a similar story for total home sales, new and existing. They're expected to fall by 0.1% this year, but to rise by 10.3% next year. That's a remarkable improvement.
These figures suggest there will soon be more listings from which first-time buyers can choose. It could also mean buyers will have more leverage when negotiating with sellers.
Some caveats
All this might be good news for first-time home buyers rather than great. But it suggests that, for the first time in years, homebuyers could soon be given a fighting chance to fulfil their dreams.
What it doesn't do is guarantee anything. Economic forecasting is notoriously difficult, and Fannie's economists face the same challenges as all others.
They must make assumptions for their models to work, and those assumptions are necessarily subjective, no matter how hard individuals strive for objectivity. Fannie's August Economic Forecast reveals some of the assumptions on which its Housing Forecast must have been based.
It assumes that tariffs and higher deficits will have negligible economic impacts in the future. It thinks the consumer price index will reflect a short and minor spike in inflation, while the unemployment rate will only nudge higher before falling back again. Fannie also thinks the Federal Reserve will cut general interest rates significantly over the next 16 months, while the yield on 10-year Treasury notes (which mortgage rates often shadow) will barely budge.
All those assumptions may turn out to be correct. Let's hope they do. But plenty of economists are less optimistic.
