Mortgage spreads are at their lowest level in years, keeping interest rates at almost 6%

Mortgage spreads

Why and how did I reach my target level this year? With interest rate volatility easing and the Fed’s rate-cutting cycle continuing, mortgage rates should improve by 0.27% to 0.41% this year.

Now that we have reached my optimal improvement for mortgage spreads in 2025, I would like to remind everyone that we are still not back to normal levels: we still have some room to move down over time. Historically, mortgage spreads have fluctuated between 1.60% and 1.80%. If current spreads were as bad as they were at the 2023 peak, mortgage rates would be 0.98% higher. Conversely, if spreads were to return to their normal range, mortgage rates would be 0.52% to 0.32% lower than current levels – which would mean mortgage rates today would be between 5.76% and 5.96%.

Mortgage interest and the 10-year interest rate

In my forecast for 2025 I expected the following margins:

• Mortgage interest between 5.75% and 7.25%
• The 10-year interest rate fluctuates between 3.80% and 4.70%

Last week was Fed week, and the day before the Fed announcement I wrote an article about how Fed Chairman Jerome Powell has a tendency to become hawkish, as other Fed members have, with 10-year yields at annual lows and mortgage rates near 6%. I have also discussed this topic this episode from the HousingWire Daily podcast with HousingWire Editor-in-Chief Sarah Wheeler. And since we’re going to have a new Fed chair in 2026, we also did an episode on the next Fed chair being more pro-housing. here.

Considering all the drama surrounding the Fed, the week wasn’t that bad. The 10-year yield ended the week at 4.08% and the bond market and mortgage rates in 2025 are no longer behaving like they were in 2024, when mortgage rates shot up to 7% after the Fed cut rates. Mortgage interest per Mortgage news daily ended the week at 6.28%, 15 basis points away from the annual low PollyThe rate-lock data showed that the mortgage rate was 6.26%.

Buy application data

We tested the housing data for 13 weeks with mortgage rates below 6.64%, which has been the key level in the past. Over the last 13 weeks, we’ve had 8 positive prints, 5 negative prints, and 13 consecutive weeks of double-digit year-over-year growth in purchasing apps. Last week there was 5% growth week over week and 20% growth year over year.

Earlier this year we saw healthy year-over-year growth, but weekly data was choppy. The last thirteen weeks have been the best of the year, but I would like to see four to six more weeks of positive week-to-week data. When interest rates rise, it usually affects the weekly data for next week.

Here are the weekly data for 2025 so far:

• 20 positive measurements
• 16 negative measurements
• 6 flat prints
• 39 consecutive weeks of positive year-over-year data
• 26 consecutive weeks of double-digit growth, year after year

In our weekly Housing Market Tracker, the data shows some volatility due to the holiday weekend and a AWS outage. As I said last week, we need two weeks after these events for the data to stabilize. This week the data showed its adjustment trajectory, but I recommend treating both this week’s and last week’s data with caution.

Last week we saw an unusual increase in inventory, new listings and weekly pending home sales data, all of which were stronger than normal. However, this week these numbers have fallen more than normal. We expect to return to normal levels next week.

Weekly home inventory data

Inventory growth fell last week. We’ll get a more accurate picture as the previous two weeks have been a bit wild. The inventory growth rate peaked at about 33% this year; now it stands at 16.45%. The stock probably fell more from week to week than it normally would because last week’s increase was also too high. Although inventory growth has slowed, it has been a very positive story for residential construction this year.

• Weekly Inventory Change (October 24 – October 31): Inventory decreased from 867,811 Unpleasant 856,701
• Same week last year (October 25 – November 1): Stock fell from 735,961 Unpleasant 735,663

New advertising data

New advertising data showed a historic week-over-week decline. In a normal situation this would be a significant development, but the data over the past two weeks has been volatile. So take this data with a grain of salt. Going from 69,000 to 51,000 is not normal. The new offering reached my target level of 80,000 per week during the peak weeks of the season, but did not grow significantly from that level, which was a disappointment.

To give you some perspective, during the years of the housing bubble, the number of new homes crashed between 250,000 and 400,000 per week for years. Here is the new advertising data from the past two years:

Weekly ongoing sales

Like the data above, weekly forecast home sales saw a big move up two weeks ago, and now down.

The coming week: no jobs week, but production data and speeches from the Fed

Normally I would say it’s jobs week! However, until the government shutdown is over, we have no government data to discuss. There are several more Fed speeches scheduled for Friday, in which a host of very hawkish Fed members are expected to say they will not support rate cuts in December. Sarah and I talked about this in the podcast that goes live on Monday. We have enough private data to indicate that the labor market has not deteriorated, but we will see how much of an impact the government shutdown has now since it has been going on for so long.