If we had experienced the worst mortgage spreads of 2023, mortgage rates would be 0.72% higher today. Conversely, with regular mortgage spreads, mortgage rates would currently be 0.68% to 0.78% lower. Returning to typical spreads could help resolve many housing issues, as home sales could increase with mortgage rates near 6% and remain stable for a while.
Fortunately, mortgage spreads are improving this year, which means the impact of higher bond yields is being limited compared to the market conditions of 2023. While this may not be the ideal scenario, it does indicate that mortgage rates would be much worse if spreads hadn’t improved in 2024 and 2025.
10-year yield and mortgage rates
In my 2025 forecast, I predict the following ranges:
- Mortgage rates will fall between 5.75% and 7.25%.
- The 10-year yield will fluctuate between 3.80% and 4.70%.
Recently, the 10-year yield closed at around 4.49%. There was a slight increase following a positive jobs report, which included revisions for previous months. The relationship between the 10-year yield and mortgage rates is becoming less damaging as spreads tend to decrease on days when the yield rises. This is why mortgage rates haven’t surpassed 7.25% this year, even though the 10-year yield has been higher than in 2024. This bodes well for 2025 as mortgage rates could be much worse.
Purchase application data
Despite elevated mortgage rates, the purchase application data at the beginning of the year has shown a slightly positive trend. Here’s a summary of the recent data:
- 2 positive readings
- 1 flat reading
- 1 negative reading
Last week, there was a 4% decrease in the weekly data compared to the previous week, but a 0.2% increase year over year. Historically, high mortgage rates tend to result in negative trends in purchase application data. For example, last year, when mortgage rates ranged between 6.75% and 7.50%, there were 14 negative readings, two positive readings, and two flat readings in the purchase application data.
Monitoring the data in February will be crucial, and we will delve into this and other housing economic topics at our Housing Economic Summit on Feb. 26 in Dallas.
Weekly pending sales
The latest weekly pending contract data from Altos Research provides valuable insights into current housing demand trends. This dataset has shown significant improvement since the summer of 2024, with year-over-year growth observed toward the end of the year. However, as mortgage rates have risen in late 2024 and remained elevated in 2025, there has been a slight decline year over year. While there is still higher growth compared to 2023 levels, it is not by a significant margin.
Weekly pending contracts for the past week over the last several years:
- 2025: 288,605
- 2024: 297,402
- 2023: 283,689
Weekly housing inventory data
A notable development in 2024 was the growth in housing inventory as we approached normal levels. Despite record-low sales, inventory has been making a strong recovery effort. There was a decline in inventory last week, which is typical for this time of year. However, we anticipate identifying the seasonal inventory data’s lowest point soon and expect the usual annual increase that we typically see.
- Weekly inventory change (Jan. 31-Feb 7): Inventory decreased from 634,979 to 632,367
- The same week last year (Feb. 2-Feb. 9): Inventory decreased from 497,347 to 494,819
- The all-time inventory low was in 2022 at 240,497
- The inventory peak for 2024 was 739,434
- For context, active listings for the same week in 2015 were 947,864
New listings data
Our new listing data from Altos Research reflects homes coming to the market without an immediate contract, offering real-time insights into any selling pressure in the market. The last two years marked the lowest new listings data years in history.
Last year, I anticipated at least 80,000 new listings per week during the seasonal peak months, but this did not materialize. This year, I believe we can reach that target. Last week’s data was slightly lower than expected, which may pose a risk to my forecast. There doesn’t seem to be a significant increase in selling pressure early on in the data; achieving between 80,000 and 110,000 new listings during peak weeks was normal between 2013 and 2019. Even in 2021 and 2022, we reached 80,000 new listings, so my expectation is not unreasonable. During the housing bubble crash years, this data line ranged between 250,000-400,000 per week.
New listing data for last week over the past 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, reflecting the usual dynamics of the housing market. Last year, my forecast of 2.33% nominal price growth was too conservative.
For 2025, I predict a growth of 1.77%, indicating another year of negative real home price growth. As inventory increases and mortgage rates remain above 7%, price growth is expected to slow down. While I underestimated last year’s price growth due to a temporary drop in mortgage rates to 6%, a slowdown in price growth is beneficial for the housing market’s stability.
Price cut percentages for last week over the past several years:
- 2025: 33.15%
- 2024: 31%
- 2023: 33%
The week ahead: Inflation week
This week is our traditional inflation week, with a focus on certain members of the Federal Reserve expressing confidence in the disinflation trend in rents, which significantly impacts the Consumer Price Index (CPI) data. However, this confidence is not as strong regarding the Producer Price Index (PPI) or the Personal Consumption Expenditures (PCE) inflation data. We will closely monitor these developments.
Moreover, a few Fed presidents will be speaking this week, along with scheduled bond auctions and the release of retail sales data on Friday. Jobless claims on Thursday morning will also be a key focus.
This week is likely to bring more headline drama related to reciprocal tariffs, and we will analyze how the market responds, as discussed here.