If we had experienced the worst mortgage spreads of 2023, mortgage rates would be 0.72% higher today. On the other hand, with regular mortgage spreads, mortgage rates would currently be 0.68% to 0.78% lower. If we return to typical spreads, many housing issues could be resolved, as home sales could grow with mortgage rates near 6% and remain stable for some time.
However, this year, mortgage spreads are getting better, meaning that the damage from higher bond yields is getting limited compared to the market of 2023. While this isn’t the grand prize people want, it does show that mortgage rates would be much worse if the spreads didn’t improve in 2024 and 2025.
10-year yield and mortgage ratesÂ
In my 2025 forecast, I anticipate the following ranges:
- Mortgage rates will be between 5.75% and 7.25%.
- The 10-year yield will fluctuate between 3.80% and 4.70%.
Last week, the 10-year yield closed at approximately 4.49%. We observed a bounce following the jobs report, which showed positive results and revisions for previous months. I discussed this report in more detail here.Â
As I mentioned earlier, the mortgage rate damage is becoming less and less when the 10-year yield rises because the spreads tend to decrease on these days. This is the biggest reason mortgage rates haven’t gotten above 7.25% this year even though the 10-year yield has gone higher this year than in 2024. This is a positive story for 2025 because mortgage rates could be worse.
Purchase application data
As we begin the year, the purchase application data has shown a mild positive trend, despite elevated mortgage rates. Here’s a summary of the recent data: Â
- 2 positive readings Â
- 1 flat readingÂ
- 1 negative reading
Last week, the weekly data was down 4% week to week, but up 0.2%Â year over year. Historically, when mortgage rates are high, the purchase application data tends to reflect negative trends. For instance, last year, when mortgage rates ranged between 6.75% and 7.50%, the purchase application data showed 14 negative readings, two positive readings, and two flat readings.
We will keep a close eye on the data in February and we will be discussing this and other housing economic topics at our big Housing Economic Summit Feb. 26 in Dallas.
Weekly pending sales
The latest weekly pending contract data from Altos Research offers valuable insights into current trends in housing demand. This dataset has shown a notable improvement since the summer of 2024, and toward the end of the year, it showed year-over-year growth. However, as mortgage rates started to rise late into 2024 and stay elevated in 2025, it has facilitated a small decline year over year from where we had been growing. We are still showing higher growth versus 2023 levels but not by much.
Weekly pending contracts for the past week over the past several years:
- 2025: 288,605
- 2024: 297,402
- 2023: 283,689
Weekly housing inventory data
The highlight of 2024 for me was the growth in housing inventory as we began to return to normal levels. Inventory is making a strong effort to recover after the challenges of the past five years, even with record-low sales. We did observe a decline last week, which isn’t unusual for this time of year. However, we aim to identify the lowest point in the seasonal inventory data soon and anticipate the usual annual increase that we typically experience.
- Weekly inventory change (Jan. 31-Feb 7): Inventory fell from 634,979 to 632,367
- The same week last year (Feb. 2-Feb. 9): Inventory fell from 497,347 to 494,819
- The all-time inventory bottom was in 2022 at 240,497
- The inventory peak for 2024 was 739,434
- For some context, active listings for the same week in 2015 were 947,864
New listings data
Our new listing data from Altos Research reflects homes that come to the market without an immediate contract, providing us with a real-time view of any selling pressure in the market. The last two years were the two lowest new listings data years in history.
Last year, I had forecasted we would get at least 80,000 per week during the seasonal peak months, but It didn’t happen. This year, I believe we should hit that target. Last week was slightly lower than what I was looking for, which can put my call at risk. I do not see any big extra selling pressure in the data early on; getting between 80,000 and 110,000 during the seasonal peak weeks was normal between 2013 and 2019. We also got to 80,000 in 2021 and 2022, so I am not asking a lot here, but we didn’t get it last year when I was sure we would.
Note: during the housing bubble crash years, this data line ran between 250,000-400,000 per week.
The new listing data for last week over the previous several years:
- 2025: 53,863
- 2024: 51,874
- 2023: 44,533
Price-cut percentage
In an average year, about one-third of all homes typically experience a price cut, which reflects the usual dynamics of the housing market. Last year, I had a low forecast, predicting only 2.33% nominal price growth, which turned out to be too low.
For 2025, I am forecasting a growth of 1.77%, indicating another year of negative real home price growth. As inventory increases and if mortgage rates remain above 7%, price growth is expected to cool down. I acknowledge I was mistaken last year, partly because mortgage rates fell to 6% for a short time. However, the slowdown in price growth is a positive development for the housing market, which desperately needs it.
Price cut percentages for last week over the previous several years:
- 2025: 33.15%
- 2024: 31%
- 2023: 33%
The week ahead: Inflation week
This week is our traditional inflation week, but with a twist: certain members of the Federal Reserve seem more confident about the disinflation trend in rents, which significantly impacts the Consumer Price Index (CPI) data. However, this confidence does not extend as much to the Producer Price Index (PPI) or the Personal Consumption Expenditures (PCE) inflation data. We will put this assumption to the test.
Additionally, a few Fed presidents will be speaking this week, and there are bond auctions scheduled, along with retail sales data to be released on Friday. As always, jobless claims will be our focus on Thursday morning.
This week we will likely see more headline drama related to reciprocal tariffs, and I will discuss how the market reacts to that, as I did here.
