Economy Enters 2025 on Strong Footing as Markets Digest Policy Uncertainty

Mortgage Rates Predicted to End 2025 at 6.6 Percent but Remain Volatile

WASHINGTON, Feb. 20, 2025 /PRNewswire/ -- Incoming gross domestic product (GDP), labor market, and inflation data point to an economy that entered 2025 with strong momentum, according to the February 2025commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group. While the ESR Group's GDP outlook is unchanged at 2.2 percent Q4/Q4 in 2025, it revised upward its expectations for the Consumer Price Index, which is now forecast to end 2025 at 2.8 percent on a year-over-year basis (2.5 percent previously), primarily due to recently higher-than-expected inflation readings. Further, the ESR Group incorporated the recently implemented 10-percent additional tariff on imports from China into its February forecast; it expects the tariffs will have a small negative impact on growth and put slight upward pressure on inflation. However, the ESR Group notes that current risks to the outlook are higher than normal due to uncertainty around trade policy, including additional tariff proposals.

The ESR Group now expects mortgage rates to end 2025 and 2026 at 6.6 and 6.5 percent, respectively, upward revisions from its prior outlook. The ESR Group notes there are plausible scenarios for both upward and downward movement in mortgage rates due to trade policies, but its expectations for mortgage rate volatility this year remains intact as markets react to trade policy announcements, incoming economic data, and other fiscal policy changes. Additionally, the ESR Group made modest upward revisions to its existing home sales outlook for 2025 due to a stronger-than-expected December sales pace and resilient purchase applications data, but it notes that the level of existing sales is still expected to be 22 percent below the pace seen in 2019.

"Economic growth was strong to start the year as fourth quarter personal consumption data came in above our expectations," said Kim Betancourt, Fannie Mae Vice President of Multifamily Economics and Strategic Research. "Going forward, we expect the economy to decelerate slightly as consumer spending slows to a level more consistent with its historical relationship to income. However, ongoing uncertainty around trade policy adds risk to our GDP and inflation outlooks, which may have implications for mortgage rates, although the direction – up or down – would depend on a number of factors. Higher mortgage rates would exacerbate the existing 'lock-in effect' and worsen affordability, which may then weigh on home sales and mortgage originations activity. Of course, if mortgage rates move lower, we'd likely see an improvement in affordability and a corresponding pickup in housing activity."

Visit the Economic and Strategic Research site at fanniemae.com to read the full February 2025 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, and Housing Forecast. To receive email updates with other housing market research from Fannie Mae's Economic and Strategic Research Group, please click here.

Opinions, analyses, estimates, forecasts, beliefs, and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, beliefs, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, beliefs, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

About the ESR Group
Fannie Mae's Economic and Strategic Research Group, led by Chief Economist Mark Palim, studies current data, analyzes historical and emerging trends, and conducts surveys of consumer and mortgage lender groups to provide forecasts and analyses on the economy, housing, and mortgage markets.

About Fannie Mae
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