Demand for housing is positive, but is at risk due to higher mortgage interest rates

Our weekly current contract data is still positive year over year, but only by 1%, as demand growth has slowed due to higher mortgage rates. What does this mean for the spring housing market? Let’s take a look at the data and see what we can expect.

Weekly ongoing sales

The latest weekly current contract data from Alto’s research provides critical insights into real-time trends in housing demand. The figures from 2022 and 2023 have been showing positive growth for some time. We are still showing growth in 2025 compared to 2024 data, but the growth rate has slowed to just 1%.

Weekly ongoing contract data is highly seasonal; we are about to end the bottom of sales in this data line and see the traditional increase in demand. The question is whether the higher mortgage interest rates can break the winning streak of positive year-on-year figures. Over the past two and a half years we have seen better demand with mortgage rates moving towards 6%, but now we are entering the second week of January with mortgage rates above 7%. For now, however, we still have slightly positive year-on-year data.

Weekly running contracts for the past week of recent years:

• 2025: 252,586
• 2024: 250,621
• 2023: 231,674

Buy application data

I don’t normally comment on purchase request data during the last two weeks of the year or the first week of the new year because volumes tend to collapse during this period, making the data useless. However, before the holiday weeks, data held up well given rising mortgage rates.

Last year, during the winter to spring months of early 2024, when mortgage rates hovered between 6.75% and 7.50%, purchase application data looked like this:

• 14 negative prints
• 2 flat prints
• 2 positive prints

So we will be watching this closely as mortgage rates are close to the highest levels we saw in 2024.

10-year interest rate and mortgage interest rate

My prediction for 2025 includes:

• A mortgage interest rate range between 7.25%-5.75%
• A bandwidth for the ten-year interest rate between 4.70% and 3.80%

Last week was employment week and all the key data points held, leading to 10-year yields actually rising above my 2025 peak forecast. In the meantime, mortgage interest rates are slightly lower than I expected for 2025. This situation is comparable to last year; However, mortgage rates at the time reached around 7.50% as spreads were worse.

For mortgage rates to continue rising from these levels, economic data, especially the labor market, must perform better and continue to perform. The wildcard here is that housing starts and permits are already at recession levels and higher rates could impact construction workers, which has other effects as I discussed here.

Mortgage spreads

Mortgage interest rates are currently high, which is not ideal for the housing market. However, the situation could be even worse. If we applied 2023’s worst spread levels to current rates, we would see an additional 0.82% increase in mortgage rates – which would put us above 8%. On the other hand, if mortgage spreads were at their normal levels, we could expect mortgage rates to be about 0.68% to 0.78% lower than they are now.

For my 2025 forecast, I expect an improvement in spreads of 0.27%-0.41% on average, 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 returns decline.

Weekly home inventory data

As we enter 2025, we are experiencing healthier inventory levels compared to what we experienced from 2020-2023. This improvement has been the most significant benefit to the current housing market. The key question now is when we will see the seasonal low and the traditional stock surge in the spring. We hope to see this increase in January and February, rather than March and April as we have seen in some post-COVID years.

• Weekly Inventory Change (January 3 – January 10): Inventory has decreased from 635,432 Unpleasant 624,419
• Same week last year (January 5 – January 12): Stock rose from 499,105 Unpleasant 505,186
• The lowest inventory level of all time was in 2022 240,497
• The inventory peak for 2024 was 739,434
• For some context, there were active listings for the same week in 2015 924, 813

New entries

I’m looking forward to 2025 because new listings data could grow more this year than last year. We were operating with historically low new listing data two weeks ago due to the New Year’s holiday, but last week we experienced a healthy rebound.

The prediction I got wrong for 2024 was that we would see at least 80,000 prints during the peak seasonal weeks, which didn’t happen. To get back to normal, we need seasonal peak weeks with numbers between 80,000 and 110,000. Here you will find last week’s new offers. in recent years:

• 2025: 44,639
• 2024: 39,640
• 2023: 36,804

Price reduction percentage

In an average year, it is common for around a third of all homes to see a price drop, reflecting the usual dynamics of the housing market. We are in a seasonal downturn for price reductions and we will be keeping a close eye on whether this and the 2025 inventory data turn higher.

Price reduction percentages for the past week over the past years:

• 2025: 33.9%
• 2024: 32%
• 2023: 36%

Next week: inflation week!

It’s inflation week again and we will analyze the current perception of the numbers, especially as the 10-year yield has undergone a significant shift and is now approaching cycle highs. We have upcoming data on retail sales and housing starts, and it will be interesting to see the builder confidence report as higher mortgage rates have been around for some time.

As always, we’ll also keep an eye on key unemployment benefits data on Thursday, which showed a decline last week.

The interesting aspect with the Federal Reserve the question now is whether they will comment on the rise in interest rates, or whether it will simply continue as normal. As Fed President Logan of the Dallas Fed once said, if 10-year yields rise, we don’t need to be so restrictive in our policy.

View all our weekly Housing Market Tracker articles here.