According to Fannie Mae’s recent Economic and Strategic Research (ESR) Group report, the U.S. economy started 2025 with some muscle — GDP growth is steady, the labor market is holding firm, and inflation, while stubborn, isn’t spiraling. But if you ask consumers, the mood is darker. That’s the paradox facing policymakers, investors, and homebuyers alike.
The ESR Group is predicting 2.2% GDP growth for the year, though it’s now penciling in a higher inflation rate — 2.8% instead of 2.5% — thanks to stronger-than-expected price pressures and a new 10% tariff on Chinese imports. The policy uncertainty doesn’t stop there; shifting trade moves and fiscal changes could add more volatility, leaving markets jittery.
Mortgage rates remain a wild card. The ESR Group now expects them to end 2025 at 6.6%, with a slight dip to 6.5% in 2026. But don’t let that small shift fool you — rates could lurch in either direction depending on policy changes and economic conditions.
For consumers, though, optimism is fading fast. Currently, 51.4% of Americans expect mortgage rates to climb even higher in the coming year.
The housing market is feeling the pull. December’s stronger-than-expected home sales prompted a modest upward revision to Fannie Mae’s 2025 sales outlook, but many homeowners are still locked into ultra-low mortgage rates from years past, unwilling to sell, while affordability remains a challenge.
“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.”
Betancourt also acknowledged the mortgage rate dilemma: “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.”
Consumers, however, aren’t banking on relief anytime soon. The economy may be humming along on paper — but on Main Street, skepticism reigns.
