There is a sense of cautious optimism for a potential economic recovery in the second quarter, as improved weather conditions and clearer trade negotiations may come into play. However, if economic indicators continue to weaken and labor data deteriorates, my lower-end forecast for 2025 may come into play.
As mentioned previously, the 10-year yield range of 4.15% to 4.18% is proving to be a significant hurdle that may not be easily overcome. Moving forward, it is crucial to closely monitor economic indicators, particularly labor data. Despite mortgage rates dropping to as low as 6.64%, they have not been able to break below that level this year.
Any signs of weakness in the labor market will draw the attention of the Fed and bond markets. This week, with jobs week and liberation day approaching, we are nearing the testing of that critical level again. If there was ever a time to break below 4.18% and see sustained bond buying, this week presents the right conditions to push mortgage rates lower.
Mortgage spreads
The current housing market is benefiting from positive changes in mortgage spreads since 2024. Typically ranging between 1.60% and 1.80%, these spreads have contributed to keeping mortgage rates lower than they would be if at peak levels from 2023. Looking ahead to 2025, a modest decline in mortgage spreads is expected, around 0.27% to 0.41%, based on the average seen in 2024.
Purchase application data
Unlike the negative trends seen in purchase application data last year, 2025 has shown positive growth year-over-year in most weekly data. While demand is growing from a low base, it is important to monitor these trends as the year progresses. Weekly data for 2025 has indicated positive growth, with the potential for more challenging comparisons in the second half of the year.
Weekly total pending sales
Recent data on weekly total pending contracts offers insights into current housing demand trends. Despite mortgage rates remaining elevated, there has been a pickup in weekly data, indicating potential growth in housing demand. Comparing weekly pending contracts over the past few years shows a positive trend in 2025.
Weekly housing inventory data
The housing market is showing progress towards a more balanced level of active inventory, with recent increases in active listings. While inventory levels have not yet reached those seen in 2019, the upward trend is promising. Weekly inventory data changes reflect this positive development.
New listings data
While there was a decline in new listings growth last week, 2025 is on track to outperform previous years. The growth in new listings data is essential for returning to normal levels in the housing market. Comparing national new listing data over recent years shows positive growth in 2025.
Price-cut percentage
The increase in the percentage of homes experiencing price cuts this year compared to previous years indicates market fluctuations. Despite projected modest home price increases for 2025, the current market conditions support this outlook. Higher mortgage rates and increased inventory levels have influenced the percentage of homes undergoing price reductions.
The week ahead: Trade war and jobs week
This upcoming week presents potential developments in trade negotiations and job market data. Monitoring how these events impact the bond market and mortgage rates will be crucial. With significant economic data releases and statements from key figures scheduled, it promises to be an eventful week with the potential for further movements in mortgage rates.