Impact of Recent Mortgage Rate Changes on the Housing Market
The financial markets have demonstrated their inherent volatility recently, highlighted by a substantial increase in the 10-year yield which has consequently driven mortgage rates higher. This raises a critical question—what effect has this had on housing market performance? The year has generally seen positive developments in purchase application data and pending home sales, but will this newfound increase in mortgage rates disrupt this positive trend?
Current Purchase Application Trends
This year could have been primarily focused on housing market advancements if not for the persistent environmental factors, such as the impacts of the so-called Godzilla Tariffs. Despite rising mortgage rates, the latest data reveals a 9% increase in purchase applications week-over-week and a 10% rise year-over-year, even as mortgage rates have largely remained above 6.64% throughout the year.
The weekly purchase applications for 2025 show a mix of trends:
- 7 positive readings
- 3 negative readings
- 3 flat readings
In contrast, last year witnessed a starkly different landscape, with mortgage rates climbing towards 7.50% at the beginning of the year, resulting in 14 weeks of negative trends in purchase applications. Moving forward, it is plausible that we could see a decrease in purchase applications next week, aligning with historical patterns observed during rapid rate increases. However, if rates were to stabilize closer to 6%, we could expect healthy growth in existing home sales.
Pending Home Sales Developments
Analyzing the latest pending sales data from Altos provides further insights into current housing demand. Historically, a significant drop in mortgage rates—around the 6% mark—has spurred real growth in this area. Currently, we are witnessing an uptick in weekly sales data, with positive year-over-year trends emerging in total pending sales.
Weekly Pending Contract Data for Recent Years:
- 2025: 377,633
- 2024: 371,457
- 2023: 335,017
10-Year Yield and Mortgage Rate Predictions
Looking ahead in 2025, forecasts indicate mortgage rates are expected to range between 5.75% and 7.25%, while the 10-year yield may fluctuate between 3.80% and 4.70%. Previous analyses suggested that yields would likely not dip below 4% if market conditions remain impacted by the Godzilla tariffs. The recent increases in bond market stress, particularly following economic statements from the White House, have added to the uncertainty.
This market volatility could lead to a decline in new purchase applications next week, underscoring the necessity for events to stabilize to create more predictable conditions for buyers and industry professionals alike.
Mortgage Spreads Overview
Mortgage spreads, which had been improving at the start of 2024, have once again deteriorated in the current market climate. Despite this backdrop, it is worth noting that if spreads were as unfavorable as they were in 2023, mortgage rates would likely be near 8%, which would have significantly hindered any positive market trends observed this year. A more normalized spread could lower rates to around 6%.
Housing Inventory Changes
The arrival of spring brings promising changes to the housing inventory landscape. Current trends indicate a welcome increase in inventory, supporting a healthier housing market overall. For the week of April 4 – April 11, inventory rose from 691,197 to 702,434 listings, compared to the previous year when it increased from 512,930 to 526,479.
Notably, the lowest inventory recorded was in 2022, at merely 240,497 listings, while the peak for 2024 reached 739,434 listings. Historical context reveals that inventory levels in 2015 were significantly higher, with active listings around 1,021,567 during the same period.
New Listings Data
The story of new listings in 2025 is undeniably positive. The prediction for listings during peak seasons has been met, with approximately 70% to 80% of home sellers and buyers driving a promising trend towards a more balanced market environment. The numbers for new listings over the past years are as follows:
- 2025: 76,270
- 2024: 66,776
- 2023: 48,556
Price Adjustments and Market Outlook
Traditionally, around one-third of homes on the market experience a price cut, which reflects market adjustments amid rising inventory. The proportion of homes receiving price reductions has increased recently, but there appears to be stabilization in this data over the past two weeks. Looking ahead, modest growth in home prices—approximately 1.77%—is projected for the remainder of 2025, although negative real price growth persist due to current conditions. A shift in mortgage rates downwards could modify this trajectory.
Looking Forward: Market Reactions
As the market continues to evolve, current economic indicators are not yet solidifying trends due to ongoing fluctuations. The upcoming week’s events are critical, with various Federal Reserve Presidents scheduled to speak, and significant retail sales and housing starts data forthcoming. Observers will want to stay attuned to these indicators as they assess the market’s trajectory.