Fannie Mae Mortgage Rate Forecast Jumps to 7.5% Through 2027

Fannie Mae's new forecast

As recently as this summer, the official forecasts told homebuyers that mortgage rates would hold in the mid-6% range. That outlook no longer holds. Fannie Mae's Economic and Strategic Research Group now expects the average 30-year fixed mortgage rate to hit 7.4% in the fourth quarter of 2026 and stay at 7.5% in every quarter of 2027.24 In September the same group had projected 6.8% for this quarter and 6.7% for next year. That works out to an upward revision of 0.6 percentage points for late 2026 and 0.8 points for 2027.26

The revision is large, but the more important point is that it still lags the market. Rates had already passed Fannie Mae's new numbers by the time the forecast came out. Mortgage News Daily put the average 30-year fixed rate at 7.46% on October 13 and 7.56% on October 14, after a September inflation report came in hotter than expected.2426 This forecast is not a pessimistic outlier. It is a delayed attempt to catch up with rates that have already moved.

Why the forecast is already out of date

The timing explains much of the gap. Fannie Mae bases its rate projections on Freddie Mac's survey rate from the last day of the prior month. For the September forecast that was 6.66% on August 31. For the October forecast it was 7.03% on September 30.28 The group says its rate assumptions use market data as of September 30, while the rest of the forecast reflects conditions as of October 12.22 By October 8, Freddie Mac's 30-year average had already reached 7.4%.28

The September forecast went stale even faster. It was dated September 11, five days before the Federal Reserve raised its target range by a quarter point to 3.75%–4%.27 That was the Fed's first increase in more than three years.26 Weekly surveys moved above 7% soon afterward, leaving the 6.8% fourth-quarter figure well below what borrowers were actually being quoted.27

The October forecast was then overtaken within days. September consumer inflation came in at 3.7% a year, with gasoline accounting for more than half of the monthly increase.7 Coverage links rising oil prices, including the effect of the war in Iran, to higher Treasury yields and therefore higher mortgage rates.29 Fannie Mae now expects the 10-year Treasury yield to hold at 5.3% through 2026 and 2027.23 As long as that assumption stands, a return to 6% mortgages is not part of its outlook.

The reversal is sharp given where rates started the year. Thirty-year rates briefly fell below 6% in February before the climb began.26 Fannie Mae's June forecast had called for an average of about 6.4% for the rest of 2026.21

How the major forecasters compare

The main forecasters differ on how high rates will go, not on whether they stay above 7%. The Mortgage Bankers Association's October forecast is slightly lower than Fannie Mae's. It puts the 30-year rate at 7.3% at the end of 2026, then 7.2% for the first three quarters of 2027 and 7.1% in the final quarter.23 The gap comes mostly from Treasury assumptions: the MBA expects the 10-year yield to ease toward 4.9% by late 2027, while Fannie Mae holds it at 5.3%.23 MBA chief economist Mike Fratantoni blamed persistent inflation, higher energy costs and rising government debt.26

The most optimistic forecast in recent coverage is already outdated. TD Cowen's researchers expected rates to drift down to about 6.8% by the end of 2026 and 6.6% in 2027. However, that call came before the October 14 inflation report.26 With mortgage rates already above 7.5% and inflation speeding up, the risks to Fannie Mae's forecast look tilted toward higher rates, not lower ones. Analysts writing about the forecast also noted that the rate-hike-era data it relies on came before the latest inflation surprise.26

Mortgage demand is falling

The weekly MBA application data shows the effect of these rates. For the week ending October 2, total applications fell 4.2%. The refinance index dropped 8% and was 56% below a year earlier, while unadjusted purchase applications were down 15% from a year earlier.1 The MBA's Joel Kan said the jump in borrowing costs had led many potential buyers to step back. FHA purchase applications fell the most, down 6%, which suggests first-time and lower-down-payment buyers are taking the biggest hit.2

The next week showed further weakness. Applications fell another 2.7% for the week ending October 9. The purchase index dropped 4% and was 16% below a year earlier, and the conforming 30-year contract rate reached 7.50%, the highest since November 2023.3 The refinance share of applications rose to 37.7%. That was not a sign of a refinance rebound: refinance volume actually fell, but purchase applications fell faster.7

Buyers are also turning to adjustable-rate loans. The ARM share of applications rose to 10.5%, its highest in about a year, with 5/1 ARMs priced around 6.54% against 7.50% for a 30-year fixed loan.3 ICE separately reported that ARM demand is near a four-year high.10 The lower starting payment comes with the risk of higher payments once the fixed period ends.7 Xactus's mortgage intent index, which tracks credit pulls, held steady for the week but was still about 20% below a year earlier.3

Fannie Mae's own numbers point the same way. It now projects total single-family originations falling from $2.085 trillion in 2026 to $1.865 trillion in 2027. Refinance volume drops by roughly a third, from $655 billion to $430 billion, while purchase lending stays roughly flat at about $1.43 trillion.22 In September, the group had expected 2027 originations of $2.279 trillion, with refinancing growing to $802 billion.2726 That shift turns an expected refinance recovery for lenders into a contraction.

Home prices: the indexes disagree

The price picture is less clear, mainly because the major measures disagree. In September, NAR's median existing-home price was $417,500, up 1.3% from a year earlier and the highest September figure on record.20 The Case-Shiller national index rose 1.9% over the year to July, with the 20-city composite up 2.5%.15 Asking prices are falling, though. Realtor.com's median list price fell 1.4% from a year earlier in September, its 11th straight annual decline, and a larger share of listings had price cuts.19 Zillow reported that 27.4% of listings had been cut in September, up from 26.2% a year earlier.26

Adjusted for inflation, prices are already falling. July was the 14th straight month in which home values fell in real terms.13 Fannie Mae's quarterly house-price update raised its 2026 forecast to 2.7%, from 2.3% in September, but cut 2027 to just 0.6%, from 1.0%.31 Capital Economics is more cautious, expecting national prices to end 2026 roughly flat as higher rates take effect.18 Bill McBride of Calculated Risk argues that with rates near 7.5%, sales will probably slow and prices will come under pressure.6

The overall picture is a market that is stalling, not crashing. Most forecasters see slower growth or flat prices, not falling prices. The Fannie Mae/Pulsenomics expert panel still expects gains every year through 2030, though it has lowered its expectations for 2027–2029.

Sales and inventory

Existing-home sales rose 1.5% in September to a 3.99 million annual pace, but were still 2.2% below a year earlier. NAR's Lawrence Yun said August and September were the two slowest months of the year.20 Most September closings came from contracts signed when rates were near 6.7%, so the full effect of 7.5% rates has not yet shown up in sales.19 Zillow's count of pending sales, which are signed contracts, was down 8.5% from a year earlier in September.29

Inventory is giving buyers more choice. NAR counted 1.60 million homes for sale, the most since November 2019, or 4.8 months of supply.20 Altos Research's single-family inventory was up 4.8% from a year earlier but still 5.1% below 2019 levels.6 Fannie Mae expects only a small sales recovery: total sales of 4.672 million in 2026 and 4.713 million in 2027, down from the 4.882 million for 2027 it projected a month earlier.2226

What buyers should take from this

Buyers who have been waiting for rates to fall should plan around rates staying high for the next year. Both Fannie Mae and the MBA expect rates above 7% through 2027.23 Any relief would most likely require inflation and the 10-year Treasury yield to fall for a sustained period.28

The trade-off has changed. Buyers face fewer bidding wars, more listings and more price cuts, but monthly payments are higher. Realtor.com's Danielle Hale said buyers are gaining bargaining power, but higher rates limit how much they can use it.19 For financially secure buyers in markets with growing inventory, such as parts of the Mountain West where prices are slipping, that bargaining power is real.15 For FHA borrowers and first-time buyers already near their affordability limits, the latest forecast means affordability is likely to stay poor through 2027.