Mortgage rate unpredictability will be the driving factor for the market in 2025, likely leading to short bursts of refinance activity as the industry experienced in September, the December Fannie Mae economic forecast said.
Even with that instability — or maybe even because of it — Fannie Mae has increased its origination outlook for 2025
"From an affordability perspective, we think 2025 will look a lot like 2024, with mortgage rates above 6%, home price growth easing from recent highs but staying positive, and supply remaining below pre-pandemic levels," said Mark Palim, Fannie Mae chief economist, in a press release. "Still, 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 — but, on average, we expect mortgage rates to remain elevated and a hindrance to activity."
Rates for the 30-year fixed product
Through November, mortgage rates rose back up to 6.8% before dropping back to 6.6% last week, approximately 50 basis points higher than at the end of September.
Fannie Mae's December forecast expects 2025 mortgage volume to come in just shy of $2 trillion, at $1.97 trillion.
That is up from $1.94 trillion one month ago. Nearly all of that increase will be from higher purchase activity expectations, given what Fannie Mae expects the interest rate environment to be. Next year should end with $1.44 trillion in volume, compared with $1.41 trillion in last month's forecast.
Meanwhile, the refinance prediction of $529 billion was similar to November's.
For 2026, Fannie Mae dropped its forecast to $2.37 trillion, with $1.64 trillion of purchase volume and $724 billion of refis. The previous November outlook, its first for 2026, expected $2.4 trillion total volume, with $1.7 trillion of purchases and $705 billion of refis.
"While we foresee the current affordability crunch hampering activity through our forecast horizon, we expect nominal wage growth will outpace home price growth for the first time in more than a decade in 2025, slowly but surely providing some much-needed relief to potential homebuyers," Palim said.
Its 2024 total prediction was unchanged at $1.5 trillion.
In a separate report from Fitch Ratings, non-bank mortgage lenders
Non-bank lenders
"Now, issuers with leading market positions within their respective lending channels should be able to continue to gain share, aided by scalable technology platforms, diversification from servicing cash flows, relatively low corporate leverage and access to liquidity that affords them the flexibility to withstand market cycles," said the report from Eric Orenstein and Laura Kaster.
While consolidation will further benefit the largest originators, those with large servicing portfolios could have an issue. Fannie Mae expects refis to increase by $169 billion in 2025 over 2024 and by $195 billion for 2026 over next year.
That will lead to increased prepayments resulting in higher mortgage servicing rights related expenses and valuation write-downs.
"Refinance recapture success will be key for profitability for issuers with large MSR exposures," Fitch said.
Fitch cited the Fannie Mae November volume outlook in its own report. "We still expect the Federal Reserve to lower rates slowly next year and expect 125 basis points of cuts by end-2025, but we no longer forecast any further Fed rate cuts in 2026," said Orenstein and Kaster. "We project 30-year mortgage rates, which averaged 6.6% as of Dec. 12, 2024, to decline moderately in 2025."
Palim is expecting a 25 basis point cut at the next Federal Open Market Committee meeting later this week and then two more next year.
Wolters Kluwer's survey of economists for December has reduced its forecast for Fed Funds Rate reductions
Fannie Mae's December forecast for the 30-year FRM is unchanged for the first three quarters of next year, but is 0.1 percentage point lower for the fourth quarter at 6.2%. For 2026, it is also modestly lower than the prior outlook, at 6% by year-end.
Fitch expects delinquencies, already
"Expected increases in unemployment and stretched housing affordability may weaken performance; however, greater levels of accumulated home equity will provide homeowners with resolution options and act as an offset to weakening consumer credit overall in 2025," the report said.
Meanwhile, Zillow is predicting next year for housing will be a repeat of this one.
"There's a strong sense of déjà vu on tap for 2025," said Zillow Chief Economist Skylar Olsen. "We are once again expecting mortgage rates to get better gradually, and opportunities for buyers should follow, but be prepared for plenty of bumps on that path."
Zillow expects a more active home sales market, with buyers gaining the upper hand over sellers. But those looking to buy, or existing homeowners that want to refinance, must be ready to move when conditions are right, Olsen said in a blog post.
More interest rate swings like what happened in September are expected throughout 2025, "with refinancing sprints occurring during the dips," Olsen said.
