The anticipation surrounding housing markets in 2024 and 2025 brings attention to one crucial factor – mortgage spreads. Acting as the silent driving force behind the industry, improved mortgage spreads play a significant role in shaping the economic landscape. Without favorable spreads in these years, the housing market would have faced severe repercussions. Considering the worst spread levels from 2023, current mortgage rates could have witnessed an alarming additional increase of 0.81%, nearing an 8% mark. However, under typical spread conditions, mortgage rates could have been approximately 0.72 to 0.82% lower, bringing rates closer to 6%.
In the forecast for 2025, an improvement in spreads is expected to range between 0.27% – 0.41%, a promising shift from the average of 2.54% in 2024. It is essential to strive for and maintain better spreads, especially when yields see a decrease.
Moving on to the discussion about purchase application data and weekly pending sales, it becomes evident that there is a need for cautious analysis during the post-holiday period. The 27% week-to-week growth in purchase applications may seem impressive; however, historical trends suggest a temporary dip followed by a rebound in January. This recurring pattern should be taken into account to avoid misinterpretation. Similarly, the weekly pending sales data paints an interesting picture with a slight year-over-year decline in comparison to 2024. The rise in mortgage rates last year played a crucial role in shaping this trend, reflecting the direct correlation between rates and housing demand.
Shifting focus to weekly housing inventory data and new listings, it is intriguing to observe how seasonal fluctuations have evolved in recent years. Predicting the seasonal low in inventory has become challenging post-pandemic, with observed lows occurring as late as March and April. The promising rise in inventory from the previous week indicates a positive start to the year. On the other hand, new listings data reveals a notable correction in forecasted numbers, projecting potential growth this year.
Price-cut percentages present another interesting aspect of the housing market dynamics. Although currently lower than 2023 levels, price cuts are higher compared to 2024, highlighting the changing landscape of home pricing strategies.
Looking ahead, bond auctions, jobless claims, and existing home sales will shape the economic narrative in the upcoming week. As key indicators for interest rates and market stability, these reports will offer crucial insights for the future. With a milder economic forecast, coupled with the commencement of the new administration, the week ahead presents a mix of opportunities and challenges. Stay informed and prepared for the fluctuations that lie ahead.
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