March 2025 Economic and Housing Forecast

Summary:

These documents present Fannie Mae’s March 2025 economic and housing forecast. The forecast projects a slight decrease in mortgage rates for 2025 and 2026, which is expected to modestly increase home sales and single-family mortgage originations. Conversely, the outlook for overall economic growth has been lowered, primarily due to factors like weaker consumer spending and updated assumptions regarding tariffs. Inflation is expected to be higher in the near term, influenced by tariffs, although this is partially offset by lower energy price expectations.

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Main Theme and key Findings:

Key Points:

Executive Summary:

Fannie Mae’s March 2025 Economic Developments report outlines revised forecasts for the US economy and housing market. The key takeaways are a downward revision in the economic growth outlook for 2025 and 2026, an upward revision in near-term inflation primarily due to updated tariff assumptions, and a modest downward revision to the mortgage rate forecast. Despite the softer economic outlook, the lower mortgage rate projection is expected to slightly stimulate housing activity, leading to upward revisions in total home sales and single-family mortgage originations for both 2025 and 2026. The Federal Reserve is anticipated to implement only one interest rate cut in September 2025, followed by two further cuts in 2026. Uncertainty regarding the path of fiscal and monetary policy, as well as consumer and firm responses, remains elevated.
Key Themes and Important Ideas/Facts:

Revised Economic Growth Outlook:
- Fannie Mae has downgraded the economic growth outlook for both 2025 and 2026.
- The 2025 Q4/Q4 growth forecast has been revised down from 2.2 percent to 1.7 percent.
- The 2026 Q4/Q4 growth forecast has been revised down from 2.2 percent to 2.1 percent.
This downgrade is attributed to several factors:
- Updated Tariff Assumptions: The forecast now includes a 20 percent total tariff on imports from China (compared to 2024 levels) and approximately half of the announced 25 percent tariffs on goods from Canada and Mexico.
- Weaker Consumer Spending: Real personal consumption expenditures experienced a significant decline in January, although some of this was likely overstated due to temporary factors. Looking ahead, the report anticipates a “slower pace of consumer spending growth in coming quarters” due to factors like a potential weakening of the wealth effect from stock market appreciation and persistent low personal savings rates.
- Sluggish Investment Spending: A slower pace of investment spending is also anticipated.
- Quote: “We have revised downward our 2025 and 2026 growth outlooks from 2.2 percent for each year to 1.7 percent and 2.1 percent, respectively.”
Upward Revision to Near-Term Inflation:
- The inflation outlook, as measured by the Consumer Price Index (CPI), has been revised upward for 2025.
- The CPI is now expected to end 2025 at 3.2 percent on a Q4/Q4 basis, an upward revision from the prior forecast of 2.8 percent.
- This upward revision is primarily driven by the “expected pass-through of tariffs to consumer prices.”
- Lower energy prices are expected to partially offset the impact of tariffs in the near term.
- Inflation is expected to decelerate meaningfully in 2026.
- Core inflation is now expected to end 2025 at 3.3 percent year over year and 2.2 percent year over year in 2026.
- Quote: “Inflation, as measured by the Consumer Price Index (CPI), is now expected to end 2025 at 3.2 percent on a Q4/Q4 basis. This is an upward revision from 2.8 percent in our prior forecast that largely reflects the expected pass-through of tariffs to consumer prices…”
Modest Downward Revision to Mortgage Rate Outlook:
- The forecast for the 30-year fixed-rate mortgage has been revised downward.
- Mortgage rates are now expected to average approximately 6.5 percent in 2025 and 6.2 percent in 2026, both down three-tenths from the prior forecast.
- This revision coincides with the recent pullback in the yield on the 10-year Treasury note.
- However, the report notes “an unusually high degree of uncertainty regarding the path for growth and inflation during the rest of 2025, which adds risk to our interest rate forecasts.”
- Quote: “We now expect mortgage rates to end 2025 and 2026 at approximately 6.3 percent and 6.2 percent, respectively, each downward revisions of three-tenths from our prior forecast.” (Note: The body of the text states average rates of 6.5% and 6.2% for 2025 and 2026, respectively. The summary bullets give end-of-year rates of 6.3% and 6.2%. Both indicate a downward revision.)
Federal Reserve Monetary Policy Expectations:
- Fannie Mae maintains the view that the Federal Reserve will implement only one 25-basis point rate cut in September 2025.
- Two additional 25-basis point rate cuts are projected for 2026.
- The upward pressure on prices from tariffs may lead the Fed to adopt a “wait-and-see approach.”
- Quote: “Federal Reserve Chair Jerome Powell recently stated that they ‘do not need to be in a hurry’ to cut interest rates. As such, we project only one rate cut in September, followed by two additional cuts in 2026…”
Slight Uptick in Housing Activity Driven by Lower Mortgage Rates:
- Despite the softer economic outlook and weakening sentiment, the lower mortgage rate forecast is expected to be the dominant factor driving home sales fluctuations.
- Historically, falling mortgage rates tend to spur home sales even during economic contraction.
- Total home sales outlook for 2025 has been revised slightly upward to 4.95 million (from 4.90 million).
- Existing home sales outlook for 2025 and 2026 has been slightly revised upward, although affordability challenges and the “lock-in effect” remain persistent headwinds.
- New home sales and starts outlooks have only seen minor revisions, largely reflecting recent data. Tariffs on building materials pose an additional risk to starts, potentially increasing construction costs.
- Quote: “For home sales, the lower mortgage rate forecast offsets the softer economic outlook… We have revised upward our outlook for total home sales to 4.95 million in 2025, up slightly from 4.90 million in our prior forecast.”
Upward Revision to Single-Family Mortgage Originations:
- Expectations for single-family mortgage originations have been modestly revised upward.
- Total single-family mortgage originations are expected to reach $1.94 trillion in 2025 and $2.28 trillion in 2026.
- Purchase volumes are now expected to grow by 10 percent year over year in 2025 to $1.4 trillion and a further 10 percent in 2026 to just under $1.6 trillion.
- Refinance originations are also revised upward due to the lower mortgage rate forecast and a recent uptick in applications, expected to total $502 billion in 2025 and just under $700 billion in 2026.
- Quote: “Single-family mortgage originations are expected to total $1.94 trillion and $2.28 trillion in 2025 and 2026, respectively. These represent slight upward revisions from our prior forecast.”
Multifamily Housing and Home Prices:
- The multifamily housing starts forecast is mostly unchanged in the near term, with a slight downward revision in 2026 due to slow rent growth and a large number of units under construction.
- The single-family home price forecast remains unchanged this month, with projected growth of 3.5 percent in 2025 and 1.7 percent in 2026 (both Q4/Q4).
Elevated Uncertainty:
- Measures of uncertainty and market volatility have “risen meaningfully” this quarter.
- This includes uncertainty regarding the path of fiscal, monetary, and other policy developments, as well as how firms and consumers will respond.
- The report acknowledges “plausible upside and downside risks to both growth and inflation measures over our forecast horizon, as well as to interest rates.”

Conclusion:

Fannie Mae’s March 2025 forecast presents a mixed economic picture. While the overall growth outlook has softened due to factors like weaker consumer spending and updated tariff assumptions, the projected decrease in mortgage rates is expected to provide a slight boost to the housing market. The outlook for inflation has been revised upward in the near term, largely driven by tariffs, which is expected to influence the Federal Reserve’s cautious approach to interest rate cuts. Significant uncertainty remains in the economic environment, highlighting the potential for deviations from the current forecast. The revised forecast suggests a moderately improved outlook for home sales and mortgage originations compared to the previous month’s projections, primarily driven by the more favorable interest rate environment.

Detailed Timeline

February 2021: Real personal consumption expenditures experienced their largest monthly decline (0.5 percent).
2024: Single-family home prices grew by 5.8 percent on a national basis. Continued resilience in consumer spending was observed, partly driven by strong stock market appreciation.
Prior Month (Implied February 2025): The prior 10-percent tariff increase on imports from China went into effect.
February 2025: Nonfarm payroll employment grew by 151,000 jobs. The unemployment rate rose one-tenth to 4.1 percent. The yield on the 10-year Treasury note was approximately 4.45% (based on the 25 basis point drop mentioned in March). Fannie Mae’s prior forecast anticipated mortgage rates ending 2025 and 2026 at 6.6% and 6.5% respectively, total home sales at 4.90 million in 2025, single-family mortgage originations at $1.94 trillion in 2025 and $2.28 trillion in 2026, 2025 economic growth at 2.2%, 2026 economic growth at 2.2%, and Q4/Q4 2025 CPI at 2.8%. Fannie Mae’s prior forecast also expected core inflation to end 2025 and 2026 at 3.3% and 2.2% year over year, respectively, with a single 25 basis point Fed rate cut in September 2025.
January 2025: Real personal consumption expenditures fell 0.5 percent over the month, which was weaker than expected. Existing home sales fell 4.9 percent to a seasonally adjusted annual rate (SAAR) of 4.08 million. New single-family home sales dropped sharply by 10.5 percent to a SAAR of 657,000. Single-family housing starts declined. Measures of consumer sentiment weakened, and major retail and food service firms reported consumer softness.
Q1 2025 (Projected): Fannie Mae downgraded its Q1 personal consumption forecast from 3.1 percent to 2.1 percent annualized. Single-family permits data is in line with Fannie Mae’s Q1 forecast for single-family housing starts.
March 12, 2025: Fannie Mae’s updated forecasts are based on data as of this date.
March 14, 2025: Fannie Mae’s Economic Developments report is dated and published. The report includes updated forecasts.
March 2025 (Current): An additional 10-percent tariff on imports from China has been implemented (bringing the total to 20 percent compared to 2024 levels). Approximately half of the announced 25-percent tariffs on goods from Canada and Mexico have been implemented. Measures of uncertainty and market volatility have risen meaningfully this quarter. The yield on the 10-year Treasury note has pulled back into a range of 4.2 to 4.3 percent (down about 25 basis points since the previous forecast). Federal Reserve Chair Jerome Powell has stated the Fed does “do not need to be in a hurry” to cut interest rates. The National Association of Home Builders has estimated increased costs of lumber and other goods could raise the cost of constructing a typical home by about $10,000.
September 2025 (Projected): Fannie Mae projects the Federal Reserve will cut the federal funds rate by 25 basis points for the first time.
End of 2025 (Projected): Fannie Mae expects mortgage rates to be around 6.3 percent. Total home sales are forecast to be 4.95 million. Single-family mortgage originations are expected to total $1.94 trillion. Economic growth (Q4/Q4) is forecast at 1.7 percent. Core inflation (year over year) is expected to end at 3.3 percent. CPI (Q4/Q4) is expected to be 3.2 percent. Purchase mortgage volumes are expected to grow by 10 percent year over year to $1.4 trillion. Refinance activity is expected to total $502 billion. Home prices are projected to grow 3.5 percent (Q4/Q4). The unemployment rate is forecast at 4.2 percent.
First Half of 2026 (Projected): Higher year-over-year core inflation is expected.
2026 (Projected): Fannie Mae expects mortgage rates to end the year at approximately 6.2 percent and average 6.2 percent for the year. Total home sales outlook is slightly revised upward. Single-family mortgage originations are expected to total $2.28 trillion. Economic growth (Q4/Q4) is forecast at 2.1 percent. Core inflation (year over year) is expected to end at 2.2 percent. CPI is expected to decelerate meaningfully. Fannie Mae projects two additional 25-basis point rate cuts by the Federal Reserve. Purchase mortgage volumes are expected to grow a further 10 percent to just under $1.6 trillion. Refinance activity is expected to grow further to just under $700 billion. Home prices are projected to grow 1.7 percent (Q4/Q4). The unemployment rate is forecast at 4.4 percent. Multifamily housing starts forecast is revised slightly downward

Question and Answer:

What is the projected outlook for mortgage rates in the coming years?

Fannie Mae’s March 2025 forecast anticipates a further decline in mortgage rates. The 30-year fixed-rate mortgage is expected to average around 6.5 percent in 2025 and 6.2 percent in 2026. These figures represent downward revisions of three-tenths of a percentage point from the previous forecast, driven by recent movements in the broader interest rate environment.

How will the updated mortgage rate forecast impact the housing market?

The lower projected mortgage rates are expected to positively influence the housing market. Despite a softer economic outlook, the anticipated decline in rates is predicted to spur a slight increase in housing activity. Fannie Mae has revised upward its outlook for total home sales in 2025 to 4.95 million, a modest increase from the prior forecast of 4.90 million.

What are the revised expectations for single-family mortgage originations?

Single-family mortgage originations are also expected to see an uptick. The forecast projects originations to total $1.94 trillion in 2025 and $2.28 trillion in 2026. These figures represent slight upward revisions from the previous forecast, primarily attributed to the more optimistic outlook for home sales resulting from lower mortgage rates and an expected increase in refinance activity. Purchase volumes are expected to grow 10% year-over-year in 2025 to $1.4 trillion and another 10% to nearly $1.6 trillion in 2026. Refinance activity is projected to reach $502 billion in 2025 and grow further to almost $700 billion in 2026.

What factors have led to the downgraded economic growth outlook?

Fannie Mae has revised downward its economic growth outlook for 2025 and 2026. The forecast for 2025 growth has been reduced from 2.2 percent to 1.7 percent (Q4/Q4 basis), and for 2026, it has been lowered from 2.2 percent to 2.1 percent. Key drivers for this revision include updated assumptions on tariffs, reflecting current policy with additional tariffs on imports from China, Canada, and Mexico, as well as weaker-than-expected consumer spending in early 2025. A potential weakening of wealth effect-driven consumption due to recent equity market pullbacks and decreased consumer sentiment also contributes to the slower growth expectation.

How do the updated tariff assumptions and energy price outlook affect the inflation forecast?

The March 2025 forecast includes an upward revision to the Consumer Price Index (CPI) inflation outlook for 2025, with an expected rate of 3.2 percent (Q4/Q4 basis) by the end of the year, up from the prior forecast of 2.8 percent. This increase largely reflects the anticipated pass-through of higher tariffs to consumer prices. However, this impact is partially offset by the expectation of slower economic growth and a downward revision to the energy price outlook, particularly in the near term. Inflation is expected to decelerate meaningfully in 2026 as the effects of tariffs dissipate.

What is the anticipated approach of the Federal Reserve regarding monetary policy?

Based on the current economic data and policy changes, the Federal Reserve is expected to adopt a cautious approach to monetary policy. Federal Reserve Chair Jerome Powell has indicated they “do not need to be in a hurry” to cut interest rates. As such, Fannie Mae projects only one federal funds rate cut of 25 basis points in September 2025, followed by two additional 25-basis point cuts in 2026. However, the forecast acknowledges significant uncertainty surrounding the path of growth and inflation, which could influence future monetary policy decisions.

How does the economic outlook impact the labor market forecast?

Despite healthy nonfarm payroll employment growth in February 2025, the weaker economic growth outlook has had a modest impact on the labor market forecast. While the unemployment outlook for 2025 remains unchanged at 4.2 percent, it has been revised upward by a tenth of a percentage point to 4.4 percent in 2026 due to the anticipated slower economic expansion.

What is the current forecast for single-family home prices?

As of the March 2025 report, the quarterly single-family home price forecast, last updated in January, remains unchanged. Following a 5.8 percent growth in 2024, Fannie Mae projects national home prices to grow by 3.5 percent in 2025 (Q4/Q4 basis) and 1.7 percent in 2026 (Q4/Q4 basis). The next update to the home price forecast is scheduled for April.

Glossary:

Basis Points (bps): A common unit of measure in finance, equal to one one-hundredth of a percentage point (0.01%). Often used to denote changes in interest rates or yields.
Consumer Price Index (CPI): A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Used as a key indicator of inflation.
Core Inflation: Measures the change in the costs of goods and services but does not include those from the food and energy sectors. This measure is often used because food and energy prices tend to be more volatile.
Dual Mandate (Federal Reserve): The statutory objectives of the Federal Reserve are to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy. Often simplified to achieving full employment and price stability.
Existing Home Sales: Transactions involving previously constructed homes.
Federal Funds Rate: The target interest rate set by the Federal Open Market Committee (FOMC). This is the rate at which depository institutions lend reserve balances to other depository institutions overnight on an uncollateralized basis.
Fixed-Rate Mortgage: A mortgage loan where the interest rate remains the same for the entire term of the loan.
Great Financial Crisis: A severe worldwide economic crisis that occurred from 2007 to 2009.
Home Price Index (HPI): A broad measure of the movement of single-family house prices in the United States.
Lock-in Effect: The phenomenon where existing homeowners with low mortgage rates are hesitant to sell their homes and purchase new ones at higher interest rates, effectively “locking” them into their current residence.
Multifamily Housing Starts: The beginning of construction on buildings with five or more units.
National Association of Home Builders: A trade association that represents the interests of home builders, remodelers, and other residential construction professionals.
New Home Sales: Transactions involving newly constructed homes.
Nonfarm Payroll Employment: A measure of the number of employed people in the U.S. in nonfarm business establishments.
Origination (Mortgage): The process by which a lender grants a home loan to a borrower.
Personal Consumption Expenditures (PCE): A measure of the spending on goods and services by residents of the United States. Used as a key component of the Gross Domestic Product (GDP).
Q4/Q4 Basis: A method of measuring year-over-year growth by comparing the fourth quarter of one year to the fourth quarter of the previous year.
Real Personal Consumption Expenditures: Personal consumption expenditures adjusted for inflation, reflecting the actual volume of goods and services purchased.
Refinance Originations: New mortgage loans taken out by borrowers to replace existing mortgage loans.
Seasonally Adjusted Annual Rate (SAAR): An adjustment made to economic data to smooth out seasonal fluctuations and express the data as if it were occurring at an annual rate.
Single-Family Housing Starts: The beginning of construction on buildings designed for one family.
Tariffs: Taxes or duties imposed on imported goods.
10-Year Treasury Note: A marketable U.S. government debt security with a fixed interest rate and a maturity of 10 years. Its yield is often used as a benchmark for mortgage rates.
United States-Mexico-Canada Agreement (USMCA): A free trade agreement between the United States, Mexico, and Canada, which replaced the North American Free Trade Agreement (NAFTA).
Unemployment Rate: The percentage of the total labor force that is unemployed but actively seeking employment.
Wealth Effect: The tendency for people to increase their spending when they feel wealthier, typically due to an increase in the value of their assets like stocks or real estate.
Yield (Bond/Treasury Note): The return an investor receives from a bond or treasury note, typically expressed as a percentage of its face value.

Cast Of Characters:

Fannie Mae: A leading source of financing for mortgages and homeownership in the United States. The sources provide their Economic and Strategic Research (ESR) Group’s analysis and forecasts on economic and housing market conditions.
Fannie Mae’s Economic and Strategic Research (ESR) Group: The department within Fannie Mae responsible for producing the economic and housing market forecasts and analysis presented in the sources.
Mark Palim: SVP and Chief Economist for Fannie Mae’s ESR Group.
Patty Koscinski: Economics Director for Fannie Mae’s ESR Group.
Eric Brescia: Economics Manager for Fannie Mae’s ESR Group.
Nick Embrey: Economics Manager for Fannie Mae’s ESR Group.
Eric Hardy: Economist for Fannie Mae’s ESR Group.
Nathaniel Drake: Economic Analyst for Fannie Mae’s ESR Group.
Richard Goyette: Economic Analyst for Fannie Mae’s ESR Group.
Daniel Schoshinski: Economic Analyst for Fannie Mae’s ESR Group.
Ryan Gavin: Economic Analyst for Fannie Mae’s ESR Group.
Federal Reserve: The central banking system of the United States, responsible for monetary policy, including setting interest rates. Mentioned in relation to potential rate cuts.
Jerome Powell: Chair of the Federal Reserve. Mentioned for his statement on the timing of interest rate cuts.
National Association of Home Builders: An organization representing the home building industry. Mentioned for their estimate on the impact of tariffs on construction costs.

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