Fannie Mae has dramatically increased its mortgage rate forecast, predicting the average 30-year fixed mortgage rate will reach 7.5% in 2027, up from its previous projection of 6.7%.
The revised outlook suggests prospective homebuyers should not expect much relief from high borrowing costs, even as home prices soften in some markets.
Persistent inflation, rising Treasury yields, and economic uncertainty are among the factors keeping mortgage rates elevated.
Americans hoping mortgage rates will fall enough to make buying a home more affordable next year have received some discouraging news. Fannie Mae, one of the nation's largest mortgage financing companies, has sharply raised its forecast for mortgage rates through the end of 2027.
In its October economic and housing outlook, released this week, Fannie Mae predicts the average 30-year fixed mortgage rate will be 7.4% during the final quarter of 2026, rising to 7.5% in 2027, and remaining at that level throughout the year.
That's a significant reversal from just a month ago, when the mortgage giant predicted rates would average 6.8% during the fourth quarter of this year and decline to 6.7% in 2027.
The change reflects how dramatically the mortgage market has shifted in recent weeks, as stubborn inflation and rising bond yields have pushed borrowing costs higher.
According to Freddie Mac, the average 30-year fixed mortgage rate reached 7.40% during the week ending October 8, compared with 6.30% during the same week a year earlier.
What changed?
Mortgage rates are heavily influenced by the yield on the 10-year U.S. Treasury note, which has risen as investors demand higher returns on government debt.
Fannie Mae's latest economic forecast projects the 10-year Treasury yield will remain around 5.3% through 2027, helping explain why its economists no longer anticipate a meaningful decline in mortgage rates.
Inflation is another factor. September's Consumer Price Index showed annual inflation running at 3.7%, complicating efforts to bring borrowing costs down.
Higher energy prices, persistent inflation pressures, and concerns about federal borrowing have contributed to rising bond yields. Those forces can push mortgage rates higher even when the housing market itself is slowing.
Fannie Mae isn't alone in its pessimistic outlook. The Mortgage Bankers Association (MBA) also expects rates to remain above 7% throughout 2027, although its forecast is slightly more optimistic, predicting rates will ease to 7.1% by the end of next year.
What it means for homebuyers
The difference between Fannie Mae's old forecast and its new one could add significantly to the monthly cost of buying a home.
Consider a buyer purchasing a $400,000 home with a 20% down payment and financing the remaining $320,000 with a 30-year fixed-rate mortgage. At 6.7%, the principal and interest is $2,065 a month. At 7.5%, it’s $173 more.
That's approximately $2,076 in additional payments each year, or more than $62,000 over 30 years if the loan is held for its full term. The calculations exclude property taxes, homeowners insurance, and other expenses.
For many first-time buyers, that difference could determine whether they qualify for a mortgage at all.
A strange housing market
The higher rate forecast comes at a time when the housing market is showing signs of becoming more favorable to buyers in other respects.
Homes are remaining on the market longer in many communities, inventories are improving, and sellers are increasingly willing to negotiate prices or offer concessions.
According to recent housing market reporting, some markets, including Miami, Houston, and Nashville, have developed significant surpluses of homes for sale relative to the number of buyers.
But those advantages are being offset by mortgage rates that have returned to levels not seen in several years.
The result is a housing market in which buyers may have more negotiating power but fewer financial resources to make a purchase.
Should buyers wait?
Fannie Mae's revised forecast raises an important question for prospective homebuyers: Is it better to purchase now or wait for lower mortgage rates?
Waiting could make sense for households that need additional time to save for a down payment or improve their finances. But the new forecast suggests buyers shouldn't count on a substantial decline in rates during 2027.
On the other hand, buyers who can comfortably afford a home at today's rates may benefit from less competition and greater flexibility in negotiating with sellers.
One option is to ask sellers to contribute toward closing costs or a mortgage rate buydown. Buyers should also compare offers from multiple lenders, since mortgage rates and fees can vary significantly.
Fannie Mae's projections are forecasts, not guarantees. An unexpected decline in inflation, a weakening economy, or a significant drop in Treasury yields could bring mortgage rates down sooner than anticipated.