Mortgage rates fell last week. Can they go lower? by Logan Mohtashami for HousingWire

HousingWireHousingWire

Mortgage rates fell last week after a brutal few months of rising rates. The question now is whether rates can keep going lower, or if last week was just a pause in the mortgage rate storm before the spring home-buying season gets into full swing.

10-year yield and mortgage rates

My 2025 forecast includes:

• A range for mortgage rates between 7.25%-5.75%
• A range for the 10-year yield between 4.70%-3.80%

After the most recent jobs report, the 10-year yield exceeded my peak level forecast for 2025. Although mortgage rates did not rise above 7.25% like last year, yields surpassed my expectations for this early in the year.

Last week, the CPI data came in slightly below the forecast for Core CPI despite the higher headline month-to-month print. Retail sales figures missed expectations, although the control purchases portion performed well. Jobless claims increased slightly, but housing starts and industrial production data showed positive results. The Philly Fed index had a historic rise that no one took seriously.

So why did yields and mortgage rates fall last week?

First, the 10-year yield and mortgage rates were at elevated levels before the week started. This means we would need economic data to really outperform to push both rates and the 10-year yield much higher from the peak forecast level of 4.70% on the 10-year yield and 7.25% on mortgage rates. So when the CPI inflation report didn’t show much stronger core inflation data, bond yields fell right away.

Also, Fed President Waller talked about more rate cuts, spurring rates to fall. Some Fed members are getting slightly nervous about rates rising so Waller was trying to talk the market down. I discussed that in last week’s HousingWire Daily podcast.

Mortgage spreads

The unsung hero for housing in 2024 and 2025 is better mortgage spreads, which tends to be the case at this stage of the economic cycle. The U.S. housing market would have been much worse without better spreads in 2024. If we applied the worst spread levels from 2023 to today’s rates, we would see an increase of an additional 0.81% in the mortgage rate — getting near 8%. On the other hand, if mortgage spreads were at their typical levels, we could expect mortgage rates to be approximately 0.72 to 0.82% lower than they are now, which means mortgage rates near 6%. 

For my 2025 forecast, I anticipated an improvement in spreads averaging between 0.27% -0.41%, compared to the average of 2.54% in 2024. We are close to reaching that average spread range, and the goal is to improve and maintain better spreads when yields decrease.

Purchase application data 

We are moving forward with the 2025 purchase application data as we have passed the holiday season. However, caution: this data’s 27% week-to-week growth should be viewed skeptically. Every year, there is a significant drop in this data line around Christmas and New Year’s, and some so-called housing experts make a big deal out of it, only to be surprised when the data rebounds in the second week of January. This trend happens every year, so let’s keep that in mind.

Last week, purchase applications rose 27% week to week and were down 2% year over year. Last year, this data line was very negative when we had mortgage rates between  6.75%-7.50%, having 14 negative weeks, two positive, and two flat prints week to week.

Weekly pending sales

The latest weekly pending contract data from Altos Research offers critical insights into real-time trends in housing demand. The year-over-year winning streak is over, as our pending sales contract data shows a slight year-over-year decline versus 2024 data, but it’s still positive verus 2023 data. This was a very positive data line the last few months of the year, and clearly, mortgage rates heading toward 6% last year helped. 

Weekly pending contracts for the past week over the past several years:

• 2025: 257,418
• 2024: 262,264
• 2023: 241,976

Weekly housing inventory data

As we start this year, we aim to identify when the seasonal low in inventory will take place. Traditionally, this low tends to occur in January or February. However, since the COVID-19 pandemic, predicting this outcome has become more challenging — we’ve observed the low in March and April in recent years. Last year, we had a favorable situation, with the lowest point occurring in mid-February.

• Weekly inventory change (Jan. 10-Jan. 17): Inventory rose from 624,419 to 632,118
• The same week last year (Jan. 6 -Jan 13): Inventory rose from 505,186 to 506,373
• 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  933,746

New listings data

I am excited about 2025 because I can accurately forecast my new listing growth this year, correcting the miscalculation I made last year. I initially anticipated a minimum peak seasonal data of 80,000, but I fell short by just under 5,000. The seasonal data has been historically low in 2023 and 2024, so an increase toward 80,000 to 110,000 during the peak season would be a positive development.

During the years of the housing bubble crash, this data line ranged between 250,000 and 400,000 per week. However, we had stressed credit sellers back then, which is not the case now. New listings last week over the past several years:

• 2025: 45,835
• 2024: 44,238
• 2023: 42,765

Price-cut percentage

In an average year, it’s common for about one-third of all homes to see a price cut, reflecting the usual dynamics of the housing market. We are in the seasonal decline period for price cuts; we are now lower than 2023 levels but higher than 2024 levels. 

Price cut percentages for last week over the previous several years:

• 2025: 33.45%
• 2024: 31%
• 2023: 35%

The week ahead: Bond auctions, jobless claims and existing home sales

After two weeks of dramatic economic data that led to significant fluctuations in yields, we are now facing a milder week of reports. This includes jobless claims and existing home sales data. Jobless claims are the most crucial indicator for 2025 regarding interest rates. Claims rose to around 217,000 recently, while we started the year at 203,000.

We have several bond auctions scheduled for this week. We will observe the demand during these auctions and hope for a less eventful week. Of course, it will also be the first week of the Trump administration so we will keep an eye on that. Stay warm in the extremely cold week ahead!

​