Mortgage rates fell last week. Can they come down?

Mortgage spreads

The unrented housing champion in 2024 and 2025 is better mortgage spreads, which is often the case at this stage of the economic cycle. The US housing market would have been worse without better spreads in 2024 & 2025. If we applied the worst spread rates from 2023 to today’s rates, we would see a 0.81% increase in mortgage rates – closer to 8%. On the other hand, if mortgage spreads were at their normal level, we would expect mortgage rates to be about 0.72 to 0.82% lower than they are now, meaning mortgage rates closer to 6%.

In my 2025 forecast, I expected spreads to improve between 0.27%-0.41%, compared to an average of 2.54% in 2024. We are close to reaching that average spread, and the goal is to develop and maintain a better spread if the yield declines.

Buy app data

We’re moving forward with 2025 purchase demand data as we pass the holiday season. However, be careful: this data week-on-week growth of 27% should be viewed with skepticism. Every year, there is a significant drop in this line of data around Christmas and New Years, and some so-called housing experts make a big deal about it, but are surprised when the data rebounds in the second week of January. This trend happens every year, so let’s remember that.

Last week, purchase requests were up 27% week-over-week and down 2% year-over-year. Last year, this data line was not very good when we had mortgage rates between 6.75%-7.50%, we had 14 negative weeks, two positive, and two flat prints week to week.

Weekly pending sales

The latest weekly pending contract data from Altos Research provides valuable insight into real-time trends in housing demand. The year-over-year gains are over, as our pending sales contract data shows a slight year-over-year decline compared to 2024 data, but still better compared to 2023 data. This was a very good line of data for the last few months of the year, and obviously, the 6% mortgage rate last year helped.

Weekly pending contracts for the previous week over the past few years:

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

Weekly housing inventory data

As we begin this year, we aim to identify when the drop in seasonality will occur. Traditionally, this low usually occurs in January or February. However, since the COVID-19 pandemic, predicting this outcome has become more challenging – we have seen a decline in March and April in recent years. Last year, we had a good situation, when the lowest level happened in the middle of February.

• Weekly inventory changes (Jan. 10-Jan. 17): Inventory increased from 624,419 to 632,118
• In the same week last year (Jan. 6 -Jan 13): Inventory increased from 505,186 to 506,373
• The all-time inventory low was in 2022 240,497
• The 2024 asset peak was 739,434
• In another context, the active listing for the same week in 2015 was 933,746

New listing data

I am excited about 2025 because I can accurately predict the growth of my new list this year, correcting the miscalculation I made last year. At first I was expecting peak season data of 80,000, but I failed with less than 5,000. Seasonal data has been low in 2023 and 2024, so an increase to 80,000 to 110,000 during the peak season would be a positive development.

During the housing bubble years, this data line was between 250,000 and 400,000 per week. However, we emphasized on credit brokers then, which is not the case now. New listings last week for the last few years:

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

Discount percentages

In an average year, it is common for about one-third of all homes to see a price reduction, reflecting the general volatility of the housing market. We are in the waning season of discount season; we are now below 2023 levels but above 2024 levels.

Last week’s price reduction percentages over the past few years:

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

Next week: Bond auctions, jobless claims and existing home sales

After two weeks of amazing economic data that led to a big volatility in yields, we now face a soft week of reports. This includes idle claims and real estate sales data. Bad claims are the most important indicator of 2025 in terms of interest rates. Claims rose to about 217,000 recently, while we started the year at 203,000.

We have several bond auctions scheduled for this week. We will monitor demand during these auctions and hope for an uneventful week. Of course, it will also be the first week of the Trump administration so we will look into that. Stay warm this very cold week ahead!