While it’s a difficult concept to wrap one’s head around, it is possible to see lower mortgage rates and slowing home price appreciation.
Most people tend to think of mortgage rates and home prices like a seesaw.
In that if one goes down, the other must go up. And vice versa. But historically that’s just not true.
And even looking at the past few years, when mortgage rates surged, home prices continued to rise nationally.
Now home price appreciation is expected to slow quite a bit and even flatten, this despite a forecast for lower mortgage rates later this year and beyond.
But I Thought Lower Mortgage Rates Would Create a Buying Frenzy
Fannie Mae just released its latest monthly forecast for the housing market, including home price expectations and 30-year fixed mortgage rate predictions.
Interestingly, the government-sponsored enterprise (GSE) expects home price gains to slow while mortgage rates fall more than previously thought.
In their quarterly update to their house price forecast, Fannie said it now expects home price growth to be just 2.8% in 2025 and 1.1% in 2026 on a Q4 over Q4 basis.
This is down fairly significantly from their prior forecast of 4.1% and 2.0%, respectively, as measured by the Fannie Mae Home Price Index (FNM-HPI).
They’re basically calling flat home prices in 2026 and a sizable drop in appreciation for 2025 from their earlier forecast.
No real surprise there given the softness of the housing market of late, with for-sale inventory growing in many metros nationwide.
Meanwhile, they expect 30-year fixed mortgage rates to end 2025 at 6.4% and at 6.0% in 2026.
This is actually lower than their previous estimate of 6.5% and 6.1% in their prior forecast. It’s not a big change, but it’s more bullish.
Taken together, they’re saying they expect lower mortgage rates and also lower home price appreciation.
So those who assume home prices go up when mortgage rates fall might be in for a surprise.
We Can’t Look at Mortgage Rates in a Vacuum
I’ve said it before and I’ll say it again; there isn’t a strong correlation between home prices and mortgage rates.
They can fall in tandem, they can rise together, or they can go their own separate ways.
This logic that they have an inverse relationship can get you into trouble if you think it’s a sure thing.
For example, there was a narrative (and probably still is to be honest) that once mortgage rates fall, the housing market will go wild.
Sure, when we look at in a vacuum you could make that argument. After all, if mortgage rates are lower, it means buying a home is cheaper.
And this means more buyers qualify for a mortgage, at which point home prices rise.
But we need to know why mortgage rates are falling. Are they falling because the economy is teetering?
Is unemployment finally a real concern, to the point where the Fed starts cutting rates and investors flee stocks and flock to bonds?
If mortgage rates come down for the wrong reasons, we might have a smaller crop of willing and able home buyers.
We might also have increased for-sale inventory, which when coupled with lower demand, could put downward pressure on home prices.
All this despite lower mortgage rates, which arguably makes a home purchase easier to pencil.
The takeaway here is to stop looking at the relationship between home prices and mortgage rates, and instead look at things like supply and demand (or even inflation).
Those will provide a better gauge for the direction of the housing market and home prices.
Lastly, I’ll note that home prices are sticky, meaning they don’t often come down. This isn’t to say they never fall (we all remember 2008-2012).
But it’s not a common occurrence, and there’s data to back that up.
Of course, that doesn’t mean it’s always a good time to buy a home, or that there isn’t a better investment out there. Again, these choices don’t exist in a vacuum.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.