Mortgage Rates Prediction Shared by Fannie Mae

In this aerial view, single family homes are shown in a residential neighborhood on October 27, 2022 in Miramar, Florida.

The Federal National Mortgage Association, better known as Fannie Mae, has revised its expectations for the U.S. housing market this year, anticipating that housing activity will slow down modestly compared to previous projections.

In its latest forecast, released earlier this week, the Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group expects sales to dwindle throughout the year because of stubbornly high mortgage rates, though new home listings will prevent them from dropping significantly. Active home listings, according to Fannie Mae, are now up approximately 30 percent compared to a year ago.

As of May 16, the average 30-year, fixed-rate mortgage was 7.02 percent, according to data from Fannie Mae. That was down from 7.09 percent reported the week before, but up from 6.39 percent compared to a year earlier.

The ESR group expects mortgage rates to stay high and end the year near the 7 percent mark—not exactly the news that aspiring homebuyers were waiting for.

"The question our economics team is asked most frequently by industry participants remains where we think mortgage rates are headed," said Doug Duncan, Fannie Mae senior vice president and chief economist, in a press release shared with Newsweek.

"For now, we see rates remaining closer to 7 percent through the end of the year—before trending downward in 2025—but note potential downside to that forecast given recent actual movements in rates," he added.

Fannie Mae's latest consumer survey found that households who are monitoring the current state of the housing market are taking "a wait-and-see approach," Duncan said.

"This is consistent with our latest housing forecast, which does not foresee a dramatic change in activity until affordability improves," he explained. "Given ongoing supply constraints and recent indications that the labor market may be weakening, a downward movement in mortgage rates appears to be the likeliest lever to achieve an improvement in affordability."

Still-high mortgage rates are discouraging aspiring homebuyers from purchasing and driving homeowners to hold onto their lower-mortgage or mortgage-free properties instead of putting them on the market. This contributes to supply issues linked to a historic lack of inventory in the U.S.

According to the latest data from the National Association of Realtors (NAR), existing-home sales dipped by 1.9 percent in April to a seasonally adjusted annual rate of 4.14 million, while they slid 1.9 percent from a year before.

The supply shortage has kept prices up even as the market has remained relatively unaffordable. In April, according to NAR, the median existing-home sales price rose by 5.7 percent year-over-year to $407,600. It was the highest price ever for the month of April and the tenth consecutive month of year-over-year price increases.

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