Weaker Home Sales Shift Forecast for Earlier Mortgage Rate Decline

The Forecast Shifts

If you have been waiting for mortgage rates to ease up, Fannie Mae just moved the timeline a little. That is still a long way from the sub-3% rates of a few years ago, but it is a step in the right direction.

Right now, rates are not cooperating. Freddie Mac reported an average of 6.55% for a 30-year fixed mortgage in the week of July 16. The rate has remained stuck in this range for nine consecutive weeks. For context, in the week ending June 30, the rate stood at 6.49%, indicating little change.

The bigger picture is a slow grind lower. Fannie Mae expects the average rate to sit around 6.4% through the end of this year, then ease to 6.3% early next year. By the fourth quarter of 2027, it could get down to 6.2%.

For both 2026 and 2027 together, the average is predicted to be 6.3%. That means borrowing costs are going to stay elevated for a while.

Why Sales Are Slowing

Lower rates would normally be good news for home buyers, but the housing market is not bouncing back fast. The 2027 forecast also slipped - from 5.13 million to nearly 5.09 million.

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The problem is affordability. Pending home sales dropped 2.2% in the four weeks ending July 12, according to a Redfin report. Existing-home sales fell 2.4% month-over-month, the National Association of Realtors announced. The National Association of Realtors' chief economist, Lawrence Yun, commented: "The back-and-forth in monthly home sales activity, driven by mild fluctuations in mortgage rates, shows how sensitive home buyers are to affordability conditions."

Home prices are still climbing, just more slowly. Fannie Mae's Home Price Index shows prices rose 3.2% year-over-year in the second quarter of 2026, following a 2.6% gain in the first quarter. That combination of high rates and rising prices is squeezing buyers.

The forecast does predict a 0.2% bump in total sales this year and a 6.8% jump in 2027 - but those numbers are getting smaller, not bigger.

The Big Wild Card

Geopolitics is the main reason rates are staying stubbornly high. The U.S.-Iran ceasefire ended on July 8 when President Trump announced the pause was over. That conflict keeps energy prices and uncertainty elevated, which pushes mortgage rates higher.

"Corey Burr, senior vice president at TTR Sotheby's International Realty, told TheStreet": "Mortgage rates are essentially tied to the outcome of the Iran conflict at this point. If that situation festers later into the year or into 2027, I anticipate the 30-year, fixed mortgage rate will be range bound in the 6-7% range. If there is a quick resolution to the conflict and oil drops precipitously, then the 30-year fixed should fall below 6%."

Fannie Mae's July forecast was based on data from June 30, before the ceasefire ended. That means the outlook is even more uncertain now.

This uncertainty is compounded by the way bond markets react to geopolitical shocks. Mortgage rates track the yield on 10-year Treasury notes, which rise when investors flee risk. The end of the ceasefire injected new volatility, keeping yields elevated and pushing the 30-year rate to hover around 6.5% for nine consecutive weeks. If the conflict persists, Fannie Mae's forecast of a gradual decline to 6.3% may prove optimistic.

Beyond geopolitics, the bond market is also reacting to shifting expectations for the Federal Reserve's next moves. While the Fed has held rates steady, any signal of further tightening could push Treasury yields higher, in turn keeping mortgage rates elevated. For now, the Iran conflict remains the dominant factor.

What It Means for Buyers and Investors

Rates are probably staying above 6% through 2026 and most of 2027. If the Iran conflict drags on, expect the 6-7% range to stick around. A quick end could push rates below 6%.

Either way, slower home sales could shift some power toward buyers - at least in markets where prices stop climbing. For anyone watching the housing market, patience is still the theme.

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