Fannie Mae has significantly increased its forecast for mortgage rates through the end of 2026 and into 2027. The agency now expects the average rate on the 30-year fixed mortgage to reach 7.4% in the fourth quarter of this year and remain at 7.5% throughout 2027, a notable jump from its previous projections of 6.8% for the fourth quarter and 6.7% for all of 2027 [1]. As of Tuesday, the average rate on the 30-year fixed mortgage stood at 7.46%, according to Mortgage News Daily, with expectations that rates will likely rise further [1].
The increase in mortgage rates is attributed to persistent inflation and a selloff in bond markets, which have driven up yields. The Federal Reserve has raised its benchmark rate for the first time in over three years, influencing the outlook on inflation and, indirectly, mortgage rates [1]. Mortgage rates typically follow the yield on the 10-year Treasury, which has surged due to higher oil prices and growing concerns in the global economy [1].
The higher mortgage rates have already impacted the housing market, leading to an early slowdown this fall. Pending sales, as measured by signed contracts on existing homes, dropped 8.5% in September year-over-year, according to Zillow [1]. Mortgage demand continues to decline sharply as buyers face higher prices and worsening affordability, resulting in a shrinking pool of qualified buyers [1].
Fannie Mae did not respond to requests for comment regarding its latest forecast [1].
CONCLUSION
Fannie Mae's upward revision of its mortgage rate forecast signals ongoing challenges for the housing market, with higher rates expected to persist into 2027. The combination of rising rates, persistent inflation, and declining affordability is likely to continue weighing on home sales and mortgage demand.