Fannie Mae’s Economic Forecast for 2025: What It Means for Real Estate

As we move into 2025, the real estate market is keeping a close watch on the latest economic projections from the Fannie Mae Economic and Strategic Research (ESR) Group. Their February 2025 forecast provides insight into GDP growth, inflation, mortgage rates, and housing market trends. However, not everyone agrees with their outlook, and differing perspectives from Federal Reserve officials, market analysts, and policymakers paint a more complex picture. Here’s a breakdown of the key findings from Fannie Mae’s report and how they compare with contrasting opinions.

Economic Growth: A Strong Start, But Uncertainty Looms

The ESR Group predicts 2.2% GDP growth for 2025 (Q4/Q4), maintaining its previous forecast. The report highlights that economic momentum from late 2024 carried into the new year, driven by robust personal consumption.

While Fannie Mae remains optimistic about steady growth, some Federal Reserve officials are more cautious. St. Louis Fed President Alberto Musalem has warned about potential economic stagnation, citing rising inflation expectations and concerns about stagflation—a scenario where inflation remains high while economic growth slows. Additionally, uncertainties surrounding trade policies could dampen growth in the latter half of the year.

Inflation: A Bigger Concern Than Expected

Fannie Mae’s View: The ESR Group revised its inflation forecast upward, now expecting the Consumer Price Index (CPI) to end 2025 at 2.8% (previously 2.5%) and core CPI at 2.9%. They cite recent higher-than-expected inflation data as the primary driver of this revision.

On the other hand, the Federal Reserve remains divided on inflation expectations. Some policymakers suggest that inflation could be even more persistent than Fannie Mae anticipates, especially given new tariffs and wage pressures. A report from Politico highlights concerns from Wall Street investors, who worry that the Biden administration’s recent trade policies, including tariffs on China, may push inflation higher than expected.

Mortgage Rates: Higher for Longer?

The ESR Group now expects mortgage rates to end 2025 at 6.6% and remain around 6.5% in 2026. They anticipate continued volatility in mortgage rates due to uncertainty in trade policy and broader economic conditions. Previously, the ESR group had projected interest rates of 6.3% and 6.0% respectively. 

Housing Market: A Mixed Outlook

Fannie Mae’s View:

• Existing home sales were slightly revised upward due to stronger-than-expected December 2024 data.
• Newly constructed home sales projections were revised downward due to a weaker-than-expected Q4 2024.
• The single-family mortgage originations forecast was slightly lowered to $1.89 trillion for 2025 (previously $1.92 trillion).

Contrasting Perspective: While the ESR Group anticipates some resilience in existing home sales, other analysts warn that higher mortgage rates could further constrain affordability. The National Association of Realtors (NAR) notes that limited inventory, coupled with high rates, could keep housing sales volumes muted through most of 2025. That said, JP Morgan shares Fannie’s view of the situation, anticipating a market that will remain largely frozen but with a sligh uptick in sales volume. 

On the other hand, some optimistic perspectives suggest that if the Federal Reserve unexpectedly lowers rates later in the year, affordability could improve, leading to a rebound in homebuying activity—particularly in markets where supply remains constrained.

Tariffs and Trade Policy: The Wild Card

Fannie Mae’s View: The forecast incorporates the recently implemented 10% tariff on imports from China, which they estimate has slightly reduced GDP growth and increased inflation. They acknowledge that additional proposed tariffs are not yet included in their base forecast but present significant risks to their projections.

Contrasting Perspective: Trade policy uncertainty is a key risk factor. Some economists warn that if additional tariffs are enacted, inflation could rise further, forcing the Fed to delay rate cuts or even consider additional tightening. Others argue that tariffs could cool demand, slowing down economic growth more than anticipated.

Read more: Chances of Fannie and Freddie being privatized

What This Means for the Real Estate Market

1. Mortgage Rate Volatility: Buyers and sellers should prepare for fluctuations in mortgage rates, as economic data and policy changes could lead to unexpected shifts in borrowing costs.
2. Affordability Challenges: Higher home prices and elevated mortgage rates will continue to challenge first-time buyers, while homeowners with locked-in low rates may be reluctant to sell.
3. Potential Market Softening: If inflation remains high and the Fed delays rate cuts, home sales could remain sluggish through much of the year.
4. Opportunities for Buyers: If economic growth slows and inflation cools faster than expected, mortgage rates could dip later in 2025, presenting buying opportunities.

Conclusion

The February 2025 Fannie Mae ESR Group report offers a cautiously optimistic outlook for the economy and housing market. However, competing perspectives highlight the risks of inflation, policy uncertainty, and potential market volatility.

For real estate professionals, investors, and homebuyers, the key takeaway is to stay informed and remain flexible in response to economic shifts. As always, working with a knowledgeable lender and real estate agent will be crucial in navigating this evolving market.

Franklin Carroll

Franklin Carroll is Kukun's VP of Modelling and Analytics; After finishing his studies at the University of Chicago, he worked at Fannie Mae where he helped build Collateral Underwriter, roll out the Value Verify initiative, and specialized in collateral related and credit related policy.

Published March 1, 2025