There are optimistic expectations among some for a potential recovery in the second quarter, as improved weather conditions and greater clarity regarding trade negotiations may come into play. Nevertheless, should the economic indicators soften further and labor data weaken, my bottom-end range of the 2025 forecast is in play
As we discussed over a month ago, the 4.15% to 4.18% range for the 10-year yield is shaping into a crucial hurdle that won’t be easily surpassed. Looking ahead, we need to monitor economic indicators, especially labor data. Mortgage rates have gotten as low as 6.64% but haven’t been able to break below that this year.
Any signs of labor market weakness will catch the Fed and bond markets’ attention. This week we have jobs week and liberation day and are getting close to testing that level again. If there was a time to close below 4.18% and get follow through bond buying, this week has the variables to do it and push mortgage rates lower.
Mortgage spreads
The current housing market benefits from positive improvements in mortgage spreads starting in 2024. Usually, these spreads range between 1.60% and 1.80%. If we were still dealing with the peak mortgage spread levels from 2023, we’d be looking at mortgage rates that are 0.77% higher than we have today. It’s encouraging to see how things have shifted!
Conversely, if the spreads were similar to what we normally observe, our current mortgage rates could be reduced by approximately 0.73% to 0.83%. Just imagine — if those spreads return to normal, we could see mortgage rates near 6% today.
For 2025, I expect a modest decline in mortgage spreads, around 0.27% to 0.41%, working off the 2.54% average we saw in 2024. We’ve been close to reaching that forecast a few times this year but haven’t gotten there yet.
Purchase application data
Last year, as mortgage rates climbed from 6.63% to around 7.50%, the purchase application data mainly was negative for 18 weeks, experiencing 14 weeks of negative week-to-week data and only two positive and two flat prints. We also had zero year-over-year growth prints.
2025 has been much different. Here is the weekly data for 2025:
- 5 positive readings
- 3 negative readings
- 3 flat prints
Overall, we’ve seen positive growth year over year in most of the weekly data in 2025. Last week, we saw 7% year-over-year growth. The low bar set in 2024 gave us room for year-over-year growth; the comps will get harder in the second half of 2025. The purchase application data looks out for about 30 to 90 days, but I wouldn’t say demand is robust, just growing from a low base. I talked about this in detail on the latest episode of the HousingWire Daily podcast.
Weekly total pending sales
The latest weekly total pending contract data from Altos offers valuable insights into current trends in housing demand. Usually, it takes mortgage rates to trend closer to 6% to get real growth in the housing demand data lines, but we have recently seen some pick-up on the weekly data with rates still elevated above 6.64%, as you can see in the chart below.
Weekly pending contracts for the last week over the past several years:
- 2025: 357,799
- 2024: 367,520
- 2023: 335,017
Weekly housing inventory data
Spring has arrived, ushering the traditional increase in active listings — a timely opportunity for our annual inventory boost. It is encouraging to see that the housing market is making notable strides toward a more balanced level of active inventory. While we have yet to reach the inventory levels seen in 2019, the progress observed thus far is commendable. Last week marked another positive development in inventory.
- Weekly inventory change (March 21-March 28): Inventory rose from 668,155 to 675,558
- The same week last year (March 22-March29): Inventory rose from 512,759 to 517,355
- 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 985,411
New listings data
While the growth of new listings declined last week, this year is looking brighter than both 2023 and 2024. Looking back, I had initially projected that we would reach a minimum of 80,000 listings during the peak seasonal weeks in 2024. Although I fell short by 5,000, it indicates we were not far off. After a challenging beginning to this year, we are finally making progress toward reaching that important milestone of 80,000 listings during the seasonal peak period.
To give you some perspective, during the years of the housing bubble crash, new listings were soaring between 250,000 and 400,000 per week for many years. The growth in new listings data we’re seeing now is just trying to return to normal, where the seasonal peaks range between 80,000 and 110,000 per week.
The national new listing data for last week over the previous several years:
- 2025: 67,854
- 2024: 59,854
- 2023: 48,442
Price-cut percentage
In an average year, about one-third of all homes experience a price reduction, clearly illustrating the natural fluctuations in the housing market. With rising inventory levels and persistent high mortgage rates, the percentage of homes undergoing price cuts has noticeably increased compared to periods of lower rates.
For the remainder of 2025, I confidently project a modest increase in home prices of approximately 1.77%. While this suggests another year of negative real home-price growth, the current availability of homes and elevated mortgage rates back this outlook. A significant shift in mortgage rates to around 6% could alter this trajectory. My 2024 forecast of 2.33% proved to be overly optimistic, as lower rates in 2024 made my forecast too low.
The higher percentage of price cuts this year compared to last strengthens my belief that my conservative growth price forecast for 2025 is well-founded. Price cuts for last week over the last several years:
- 2025: 35%
- 2024: 32%
- 2023: 30%
The week ahead: Trade war and jobs week
This week may bring some interesting developments, particularly regarding President Trump, who could negotiate a deal to postpone tariffs further. Additionally, it’s jobs week, and we may see some government layoffs reflected in the data. The jobless claims data has yet to show any significant cracks.
We have several significant events on the economic agenda, so monitoring how the bond market reacts to these changes is essential. Various economic data releases and remarks from Fed presidents, plus Jay Powell, will be released on Friday. So, get the popcorn ready, folks — this week might be a wild ride which could help mortgage rates go lower.
