According to the Fannie Mae Economic and Strategic Research (ESR) Group’s February 2025 analysis, incoming GDP, labor market, and inflation data indicate that the economy entered 2025 with significant momentum.
The ESR Group revised upward its expectations for the Consumer Price Index, which is now projected to end 2025 at 2.8% on a year-over-year basis (previously 2.5 %), mainly due to recently higher-than-expected inflation readings, even though its GDP outlook remains unchanged at 2.2 percent Q4/Q4 in 2025. Additionally, the ESR Group included the newly imposed 10-percent extra tariff on Chinese imports in its February prediction, predicting that the tariffs will slightly slow growth and raise inflation.
However, the ESR Group points out that because of trade policy uncertainty, including new tariff measures, the outlook is currently more risky than usual.
How Does This Affect Us?
But according to the ESR Group, there are currently threats to theFollowing an upward revision from its previous prediction, the ESR Group now projects mortgage rates to end 2025 and 2026 at 6.6 and 6.5%, respectively.
As markets respond to trade policy announcements, incoming economic data, and other fiscal policy changes, the ESR Group maintains its expectations for mortgage rate volatility this year, despite the fact that there are realistic scenarios for both upward and downward movement in mortgage rates due to trade policies. A stronger-than-expected December sales pace and robust buy applications data have led the ESR Group to make slight upward revisions to its existing home sales projection for 2025; nevertheless, it adds that the level of existing sales is still anticipated to be 22% 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 VP 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.”
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