Mortgage interest rates fell last week. Can they go lower?

Mortgage spreads

The unsung hero for housing construction in 2024 and 2025 will be better mortgage spreads, which is often the case at this stage of the economic cycle. The US housing market would have been much worse in 2024 and 2025 without better spreads. If we applied 2023’s worst spread levels to current interest rates, we would see a further 0.81% increase in mortgage rates – almost 8%. On the other hand, if mortgage spreads were at their normal levels, we could expect mortgage rates to be about 0.72 to 0.82% lower than they are now, meaning mortgage rates would be close to 6%.

For my 2025 forecast, I expected an improvement in spreads of 0.27%-0.41% on average, compared to the 2024 average of 2.54%. We are close to reaching that average spread range and the goal is to improve and maintain better spreads when returns decline.

Buy application data

We’re moving on to 2025 purchase request data now that the holidays are behind us. Be careful, though: the 27% weekly growth from this data should be viewed with skepticism. Every year there is a significant drop in this date line around Christmas and New Year, and some so-called housing experts make a big deal out of it, only to be surprised when the dates pick up again in the second week of January. This trend happens every year, so let’s keep that in mind.

Last week, purchase requests rose 27% week over week and fell 2% year over year. Last year this data line was very negative when we had mortgage rates between 6.75% and 7.50%, with 14 negative weeks, two positive and two flat week-to-week prints.

Weekly ongoing sales

The latest weekly current contract data from Altos Research provides critical insights into real-time trends in housing demand. The year-over-year winning streak is over as our current sales contract data shows a slight year-over-year decline from the 2024 data, but is still positive against the 2023 data. This has been a very positive data line for the last few months of the year, and it is clear that the mortgage interest rate, which went towards 6% last year, helped with this.

Weekly current contracts from the past week over the past years:

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

Weekly home inventory data

As we start this year, we want to determine when the seasonal inventory shortage will occur. Traditionally, this low point usually occurs in January or February. However, since the COVID-19 pandemic, predicting this outcome has become more challenging: we have observed the lows in March and April in recent years. Last year we had a favorable situation, with the low point in mid-February.

• Weekly Inventory Change (January 10 – January 17): Inventory increased from 624,419 Unpleasant 632,118
• Same week last year (Jan 6 – Jan 13): Stock rose from 505,186 Unpleasant 506,373
• 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 933,746

New advertising data

I’m excited about 2025 because I can accurately predict the growth of my new listings this year and correct the miscalculation I made last year. I initially expected a minimum seasonal peak of 80,000, but I fell just under 5,000 short. Seasonal data has been historically low in 2023 and 2024, so an increase to 80,000 to 110,000 during 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 had put pressure on credit vendors then, which is not the case now. New offers last week from recent years:

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

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 period of seasonal decline in terms of price reductions; we are now lower than the 2023 level, but higher than the 2024 level.

Price reduction percentages for the past week compared to previous years:

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

Coming up next week: bond auctions, unemployment claims and existing home sales

After two weeks of dramatic economic data that led to significant swings in yields, we now face a milder week of reports. This includes unemployment claims and existing home sales data. Jobless claims are the most crucial indicator for 2025 regarding interest rates. The number of claims has recently increased to approximately 217,000, while we started the year with 203,000.

This week we have several bond auctions planned. We will monitor demand during these auctions and hope for a less eventful week. Of course, it will also be the first week of the Trump administration, so we’ll keep an eye on that. Stay warm in the coming extremely cold week!