Some are hopeful for a potential economic recovery in the second quarter, as improved weather conditions and trade negotiations may play a role. However, if economic indicators weaken and labor data falters, my lower-end forecast for 2025 is a possibility.
The 10-year yield range of 4.15% to 4.18% is a significant hurdle that may be hard to overcome. Monitoring economic indicators, especially labor data, is crucial. Despite mortgage rates dropping to 6.64%, they have yet to break below that mark this year.
If there are signs of weakness in the labor market, both the Fed and bond markets will take notice. This week, with jobs week and liberation day approaching, we may see a test of that level again. This week presents an opportunity to break below 4.18% and see follow-through bond buying, potentially pushing mortgage rates lower.
Mortgage spreads
The current housing market benefits from positive improvements in mortgage spreads since 2024. These spreads typically range from 1.60% to 1.80%. If we were still at peak mortgage spread levels from 2023, mortgage rates would be significantly higher. It’s reassuring to see how things have changed!
Conversely, if spreads were at normal levels, current mortgage rates could be reduced by a significant margin. For 2025, a modest decline in mortgage spreads is expected, working off the average seen in 2024.
Purchase application data
Compared to last year, 2025 has shown positive growth in purchase application data. The weekly data for 2025 has mostly seen positive year-over-year growth, indicating a growing demand from a low base. The purchase application data reflects trends for about 30 to 90 days.
Weekly total pending sales
The latest weekly total pending contract data from Altos offers insights into current housing demand trends. Despite elevated mortgage rates, there has been a pick-up in weekly data compared to previous years.
Weekly housing inventory data
The housing market is showing progress towards a more balanced level of active inventory compared to previous years. While inventory levels have not reached those of 2019, the observed progress is commendable.
New listings data
New listings data for this year is looking more positive compared to previous years. The growth in new listings data is a step towards returning to normal seasonal peaks.
Price-cut percentage
The percentage of homes undergoing price cuts has increased this year compared to previous years. Despite this, a modest increase in home prices is projected for the remainder of 2025.
The week ahead: Trade war and jobs week
This week could bring interesting developments, including potential negotiations to postpone tariffs further and the impact of government layoffs on jobless claims data. Monitoring the bond market’s reaction to these changes is essential.
With various economic events on the horizon, this week could be a wild ride that may influence mortgage rates.