Imagine a world where mortgage rates could drop below 6% if spreads aligned more with historical norms. That could be a complete game-changer for many homeowners. However, the current market trend is showing that spreads tend to improve when bond yields are higher, rather than when the 10-year yield is falling. Despite this, the recent improvement in spreads since 2023 has been crucial for the housing market.
Looking ahead to the rest of the year, there is an expectation of only a modest improvement in mortgage spreads, hovering around 0.27% to 0.41% below the average level seen in 2024. While this forecast has been close to realization a few times this year, there is still room for growth.
Purchase application data
The purchase application data so far this year has shown a mixed trend, with slight negative fluctuations but still performing better than last year. Weekly year-to-date data has showcased two flat readings, three negative readings, and two positive readings, indicating some stability in the market. Despite the challenges faced by purchase applications, the figures this year have been better than when rates were at a higher range last year.
Weekly pending sales
The latest weekly pending contract data offers insights into the current housing demand trends. While there has been higher growth compared to 2023 levels, the pending sales data has shown a consistent decline. This is likely due to the rise in mortgage rates in late 2024 and throughout 2025. The housing market tends to improve when rates are near the 6% mark, signaling a need for rate adjustments for further growth.
Weekly housing inventory data
Housing inventory has shown notable growth from the historically low levels seen in 2022. Despite a slight disappointment in the inventory data this year, there has been an increase from the lows of 2022. The seasonal increase in inventory should be on the horizon, especially if mortgage rates start to fall back towards the 6% range.
New listings data
The new listing data reflects homes coming to the market without immediate contracts, providing insight into market dynamics. While the last two years saw the lowest levels in new listing data, there is a forecast for an increase this year. The recent week-to-week decline in new listings was noted but is expected to improve during the seasonal peak months.
Price-cut percentage
Typically, about one-third of homes experience price cuts in an average year. The price-cut percentage data has been higher with increasing inventory and elevated mortgage rates. This trend is expected to lead to another year of negative real home price growth in 2025. The earlier increase in price-cut percentage data this year correlates with the market dynamics and is likely to continue unless rates fall.
The week ahead: Jobs Friday Is key
As we shift focus to the upcoming week, Job Friday will be crucial for market watchers. The jobless claims data has been intriguing, especially with the recent spike. Although there will be other data releases and speeches from Fed presidents, Job Friday will be significant following the notable movement in yields. Job data has consistently impacted mortgage rates, and the trend is expected to continue in 2025.
In conclusion, the housing market is navigating through various challenges and opportunities in 2025. While there is room for growth and improvement, rate adjustments and economic factors play a crucial role in shaping the future of mortgage rates. Stay tuned for Job Friday and other key indicators to understand the direction of the market.
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