Economic Recovery on the Horizon?

Optimism is brewing for a potential recovery in the second quarter as improved weather patterns and clearer trade negotiations may positively influence economic performance. However, the outlook remains cautious; further softening of economic indicators and labor market weakness could point to the lower end of the forecast range for 2025.

Interest Rates and Bond Markets

The 10-year yield is currently facing a significant resistance point, hovering between 4.15% and 4.18%. This range has proven difficult to breach. Mortgage rates have seen a slight dip to around 6.64%, but breaking below this level remains challenging. Continuous monitoring of labor market indicators is essential, particularly as signs of labor weakness could shift the focus of both the Federal Reserve and bond markets.

This week is particularly critical, marking significant economic data releases, including job claims and other labor statistics. The market is on the verge of retesting crucial levels, and if trends favor a move below 4.18%, it may trigger additional bond buying, subsequently pushing mortgage rates lower.

Trends in Mortgage Spreads

Improvements in mortgage spreads, expected to benefit the housing market starting in 2024, are noteworthy. Traditionally, these spreads range between 1.60% and 1.80%. If 2023’s peak spread persisted, current mortgage rates could be 0.77% higher. Conversely, a return to average spreads might lower current rates by approximately 0.73% to 0.83%, bringing mortgage rates closer to 6%.

Looking ahead to 2025, a modest decline in spreads of around 0.27% to 0.41% over 2024’s average of 2.54% is anticipated, although achieving this forecast has proven difficult thus far.

Current Purchase Application Data

In stark contrast to the negative trends seen in 2023, the purchase application data for 2025 indicates improvement. In the previous year, mortgage rates rose from 6.63% to approximately 7.50%, leading to 18 weeks of negative data. Presently, the statistics for 2025 reveal:

• 5 positive readings
• 3 negative readings
• 3 flat prints

Year-over-year growth is notable, with a reported 7% increase last week. Although the preceding year set a low benchmark, the data suggests growth, albeit not strong; it is more indicative of recovery from a low base.

Pendulum of Pending Sales

Analysis of total pending sales illustrates a nuanced recovery. Traditionally, mortgage rates below 6% stimulate significant growth in housing demand. Recent data shows that pending sales have increased despite rates remaining above 6.64%:

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

Inventory and New Listings

The new spring season has heralded a much-needed boost in active listings, suggesting a move towards a more balanced housing market. Although we are yet to reach 2019 inventory levels, recent data reflect steady progress:

• Last week’s inventory rose from 668,155 to 675,558
• Year-over-year inventory increase to 517,355 from 512,759

In terms of new listings, the current week saw:

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

Market Dynamics: Price Cuts and Home Values

Historically, around one-third of homes undergo price reductions each year, a trend that has intensified recently due to rising inventory and sustained high mortgage rates. The percentage of homes with price cuts has increased, forecasting modest price growth moving forward:

• Predicted price increase: approximately 1.77% for the remainder of 2025
• Reported price cuts: 35% in 2025, up from 30% in 2023

The Week Ahead: Key Economic Indicators

The upcoming week promises to be significant, particularly regarding potential tariffs related to trade negotiations. As job data releases unfold, any shifts may have implications for the housing market and mortgage rates. This week’s events will be pivotal as various economic indicators are analyzed and reactions from the Federal Reserve are observed.