By admin1
Fannie Mae’s May housing forecast locks in a 6.3 percent average 30-year rate through the end of 2026 and most of 2027, as the Iran War keeps inflation elevated and Federal Reserve rate cuts off the table.
The 30-year fixed mortgage rate will average 6.3 percent for the rest of 2026 and won’t meaningfully budge until the second quarter of 2027 at the earliest, according to Fannie Mae’s May housing forecast released May 12.
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That’s a sharp revision from where the government-sponsored enterprise (GSE) stood just three months ago.
In its February forecast, Fannie Mae predicted the 30-year rate would average 6 percent by the end of 2026. In March, the GSE projected rates could reach as low as 5.6 percent by mid-2027. Those projections didn’t survive the spring, and the Iran War is why.
Rate shock tied to the Iran War
The 30-year fixed rate averaged 6.1 percent in the first quarter of 2026, propelled in part by a steady downward drift through January and February. Then the U.S. and Israel attacked Iran in late February, and the rate shock hit hard.
According to Freddie Mac’s Primary Mortgage Market Surveys, the 30-year average climbed from a multiyear low of 5.98 percent in late February to 6.46 percent by early April, a 48-basis-point surge in roughly five weeks that erased months of rate progress nearly overnight.
The military conflict began on Feb. 28, when the U.S. and Israel launched strikes across Iran, and it has yet to be resolved. President Trump said this week that he is holding off on a planned new strike because “serious negotiations” are underway, according to the Associated Press.
The 30-year fixed mortgage rate averaged 6.36 percent as of May 14, slightly down from last week, when it averaged 6.37 percent, according to the latest Freddie Mac Primary Mortgage Rate Survey. A year ago at this time, the 30-year rate averaged 6.81 percent.
The Strait of Hormuz problem
The war isn’t just a rate event. It’s an inflation event, and the distinction matters for anyone watching the Federal Reserve.
The ongoing closure of the Strait of Hormuz has kept energy prices elevated and, with them, headline CPI. “Headline inflation remained elevated in April because of the continued spike in energy prices from the ongoing closure of the Strait of Hormuz,” wrote Chen Zhao, Redfin’s head of economic research, following last month’s Consumer Price Index release.
Chen Zhao
Higher inflation reduces the Fed’s ability to cut its benchmark rate, and the Fed has held rates unchanged at each of its first three meetings of 2026. Wall Street traders aren’t pricing in a rate cut this year, and there’s some indication an interest rate hike could be in the future. Traders raised the odds of a year-end rate hike to roughly 30 percent to 40 percent following the April CPI report, according to CME Group data.
Zhao said that recent job data has lowered the risk of a recession, meaning there is little reason for the Fed to cut rates soon. “At the same time, today’s inflation report gives the Fed no reason to lean dovish,” she wrote. “In fact, officials may continue moving away from an ‘easing bias’ toward a more balanced stance where the next move could plausibly be a hike or a cut.”
In the near term, Zhao said that “mortgage rates will continue to move less with any one economic data release and more with oil prices and developments in Middle East negotiations, which is the underlying driver of changes in the economic data.”
A decline in single-family housing starts
Less remarked-upon in the May forecast: Single-family housing starts are in worse shape than the headline rate numbers suggest.
Fannie Mae now projects a 2.4 percent year-over-year decline in single-family starts for 2026, an improvement from April’s 4.2 percent drop prediction in absolute terms, but still negative. The 2027 outlook is where the revision stings. The GSE had previously forecast a 2.7 percent increase in single-family starts next year. The May forecast cuts that to a 0.4 percent bump.
Fewer starts mean less new inventory coming to market in 2027 and 2028, which puts upward pressure on home prices in the absence of meaningful rate relief. The Fannie Mae Home Price Index, updated quarterly, projects home price appreciation of 3.2 percent for full-year 2026 on a Q4/Q4 basis, moderating to 1.9 percent by the end of 2027.
That’s a housing market where affordability doesn’t get a lot better, as rates stay elevated, new supply underwhelms and prices keep ticking up, just slowly.
What real estate agents should take from this
The practical upshot for agents is one the data has been signaling since March: Don’t build your business plan around a rate drop.
The consumers most exposed to this forecast are first-time buyers who locked onto a target monthly payment anchored to sub-6 percent assumptions. With the 30-year fixed around 6.3 percent, the monthly payment on a median-priced home is meaningfully higher than it was at the beginning of the year, and Fannie Mae’s data suggests that gap isn’t closing anytime soon.
The GSE’s implicit message to buyers: If you can afford the payment today, waiting for a better rate environment means waiting until at least 2027, with no guarantee that the Iran War — and the inflation it’s feeding — will resolve on that timeline.
