Economic Recovery Prospects

There are optimistic expectations for a potential economic recovery in the second quarter of 2025. Improved weather conditions and clearer outcomes from trade negotiations may contribute positively. However, economic indicators, particularly in the labor market, are critical. If these indicators continue to soften, downside forecasts for 2025 remain a concern.

10-Year Treasury Yield Trends

Recently, the 10-year Treasury yield has established a significant resistance level in the 4.15% to 4.18% range. This zone may prove challenging to breach. Economic indicators, particularly labor data, will be essential to monitor, especially with mortgage rates hovering around 6.64% without dropping lower this year.

Any indication of labor market weakness could prompt significant reactions from both the Federal Reserve and bond markets. As this week unfolds, timely events such as ‘jobs week’ could allow for a test of the 4.18% threshold, possibly leading to reduced mortgage rates if bond buying gains traction.

Mortgage Spreads Insights

Mortgage spreads are expected to show improvement starting in 2024, typically ranging from 1.60% to 1.80%. Larger spreads observed in 2023 indicate that current mortgage rates are significantly better than if those peaks were still in place, with a difference estimated at around 0.77% higher.

Should spreads return to their normal levels, an additional relief of 0.73% to 0.83% could potentially lower mortgage rates near the 6% mark today. A conservative estimation for 2025 suggests a decline of mortgage spreads by about 0.27% to 0.41% based on the average observed in 2024.

Purchase Application Data Trends

The stark contrast in purchase application data between 2024 and 2025 is noteworthy. Last year, as mortgage rates transitioned from 6.63% to about 7.50%, application data reflected significant negativity for much of the year. In contrast, 2025 shows signs of stability with five positive weekly readings, alongside three negative and three flat outcomes.

Specifically, last week reported a 7% growth year-over-year—an encouraging sign, albeit from a low baseline. It should be noted that as the year progresses, year-over-year comparisons will become more challenging.

Pending Sales and Inventory Dynamics

The latest data from Altos regarding total pending sales suggests a cautious uptick in housing demand. Historical trends indicate that significantly lower mortgage rates are typically required for robust growth in this area, yet a subtle increase has been registered recently despite rates above 6.64%:

• 2025: 357,799 pending sales
• 2024: 367,520 pending sales
• 2023: 335,017 pending sales

Spring reporting reveals growth in active housing listings, highlighting efforts to achieve a more balanced inventory level compared to previous years.

Trends in New Listings

While new listings witnessed a decline last week, the overall trajectory for 2025 shows more promise than the previous two years, with current data indicating:

• 2025: 67,854 new listings
• 2024: 59,854 new listings
• 2023: 48,442 new listings

This recovery effort is essential as the market aims to stabilize more significantly after the fluctuations observed in recent years.

Price Adjustment Dynamics

In general, approximately one-third of homes typically undergo price reductions each year. However, due to increased inventory levels and sustained high mortgage rates, this year has seen a rise in the percentage of homes experiencing price cuts:

• 2025: 35%
• 2024: 32%
• 2023: 30%

Moving forward, a modest home price increase of around 1.77% is projected for 2025, providing some buffering against the challenges of high mortgage rates.

Looking Ahead: Trade and Employment Trends

This week holds potential significance as trade negotiations, particularly involving tariffs, may unfold, paired with the release of important employment data. Monitoring these economic indications will be crucial as they unfold, especially in light of Federal Reserve comments anticipated later in the week that may influence the bond market and mortgage rates.