Forecast for 10-year yield and mortgage rates
My 2025 forecast predicted the following ranges:
- Mortgage rates: 5.75% to 7.25%
- 10-year yield: 3.80% to 4.70%
2025 has aligned closely with my forecast. The 10-year yield has stayed within the projected range due to Federal Reserve policies and economic conditions. Mortgage rates have fluctuated between 6.29% and 7.25%, despite job growth slowing. To delve deeper into this, listen to today’s special episode of the HousingWire Daily podcast.
The main reason for mortgage rates not dropping below 6% is the Federal Reserve’s restrictive policies. In the past two years, the 10-year yield has reached levels below 4%, which could potentially drive mortgage rates lower. However, these instances were accompanied by recessionary concerns in the bond market.
For mortgage rates to decrease further, we would need a weaker economy or a more dovish stance from the Federal Reserve.
Analysis of Mortgage Spreads
2025 has seen favorable pricing due to improved mortgage spreads compared to previous years. As long as market stability is maintained and the Federal Reserve continues to adjust rates, this trend is expected to persist.
If mortgage spreads were as unfavorable as in 2023, mortgage rates would be significantly higher. Conversely, returning to normal spreads could reduce mortgage rates. Historically, mortgage spreads have ranged from 1.60% to 1.80%.
Optimal spreads would translate to mortgage rates around 5.82% to 6.02% currently.
Insights from Weekly Housing Inventory Data
Adjusting weekly data for holidays is crucial. Following Labor Day, a decline in inventory was observed. A rebound is expected this week to align with ongoing market trends.
Notable decreases in inventory during August are rare but occurred this year. The year-over-year inventory growth rate has reduced from 33% to 20%, potentially halving as mortgage rates approach 6%.
Last week, inventory decreased:
- Weekly inventory change (Aug. 29-Sept. 5): Inventory fell from 860,728 to 846,516
- The same week last year (Aug. 30-Sept 6): Inventory fell from 704,654 to 703,376
Analysis of New Listings Data
New listings peaked in May and have since declined. Weekly listings did not reach the target of 80,000, reflecting a seasonal decline.
Comparatively, during the housing bubble crash, listings were significantly higher. Last week’s new listings data:
- 2025: 64,682
- 2024: 61,936
Insight into Price-Cut Percentage
In 2025, a higher percentage of homes have experienced price reductions compared to last year. This trend reflects a more favorable market for buyers this year.
Last week showed a decline in the price-cut percentage, potentially influenced by the holiday. Historical data on homes with price reductions was analyzed.
Insights from Purchase Application Data
Recent data shows positive trends in purchase applications. Weekly fluctuations are observed, but year-over-year growth remains consistent.
Weekly data for 2025:
- 16 positive readings
- 12 negative readings
- 6 flat prints
- 31 straight weeks of positive year-over-year data
- 18 consecutive weeks of double-digit growth year over year
Insights from Weekly Pending Sales
Weekly pending sales offer a short-term perspective on market trends. Year-over-year growth is evident in this data line.
Last week’s pending sales data:
- 2025: 65,168
- 2024: 62,181
Analysis of Total Pending Sales
Total pending sales data provides insights into housing demand trends. Consistent year-over-year growth has been observed, especially as mortgage rates remain stable around 6%.
Last week’s total pending sales data:
- 2025: 359,275
- 2024: 357,687
Preview of the Week Ahead: Inflation and Jobs Revisions
Upcoming data on inflation and job revisions will be crucial for market movements. The Federal Reserve’s cautious approach to rate cuts in response to tariff inflation will be monitored. Additionally, jobless claims data is expected to provide insights after a slight increase last week.
Stay prepared for potential economic data fluctuations this week leading up to the Fed meeting.