Housing demand positive, but at risk from higher mortgage rates

Our weekly pending contract data is still positive year over year, but only by 1%, as demand growth has slowed amid higher mortgage rates. What does this mean for the spring housing market? Let’s take a look at the data.

Weekly pending sales

The latest weekly pending contract data from Altos Research offers critical insights into real-time trends in housing demand. It’s been showing positive growth for some time now versus 2022 and 2023 data. We are still showing growth in 2025 versus 2024 data, but the growth rate has slowed to just 1%.

Weekly pending contract data is very seasonal; we are about to end the low point of sales in this data line and see the traditional increase in demand. The question is whether higher mortgage rates break the winning streak of positive year-over-year data.

In the last two and a half years, we have seen better demand with mortgage rates heading toward 6% but now we are entering the second week of January with mortgage rates over 7%. However, for now, we still have slightly positive year-over-year data.

Weekly pending contracts for last week over the past several years:

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

Purchase application data 

I typically don’t comment on purchase application data during the last two weeks of the year or the first week of the new year, as volumes tend to collapse during this period, making the data unhelpful. However, prior to the holiday weeks, the data was holding up well, considering rising mortgage rates.

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

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

So, we will track this closely as mortgage rates are close to the highest levels we saw back in 2024. 

10-year yield and mortgage rates

My 2025 forecast includes:

• A range for mortgage rates between 7.25%-5.75%
• A range for the 10-year yield between 4.70%-3.80%

Last week was jobs week, and all the key data points held firm, which resulted in the 10-year yield rising even above my peak forecast for 2025. Meanwhile, mortgage rates are slightly lower than I had expected for 2025. This situation is similar to last year; however, at that time mortgage rates reached around 7.50% because spreads were worse.

For mortgage rates to keep rising from these levels, the economic data, especially the labor market, would have to outperform and keep outperforming. The wild card here is that housing starts and permits are already at recessionary levels and higher rates can impact construction workers, which has other effects, as I discussed here. 

Mortgage spreads

Mortgage rates are currently elevated, which is not ideal for the housing market. However, the situation could be worse. If we applied the worst spread levels from 2023 to today’s rates, we would see an increase of an additional 0.82% in the mortgage rate — getting us over 8%. On the other hand, if mortgage spreads were at their typical levels, we could expect mortgage rates to be approximately 0.68% to 0.78% lower than they are now.

For my 2025 forecast, I anticipate an improvement in spreads averaging between 0.27% -0.41%, 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 yields decrease.

Weekly housing inventory data

As we kick off 2025, we are experiencing healthier inventory levels compared to what we faced in the years 2020-2023. This improvement has been the most significant advantage for the current housing market. The key question now is when we will see the seasonal low and the traditional increase in inventory during the spring. We hope to see this increase in January and February rather than in March and April, as observed in some years following COVID.

• Weekly inventory change (Jan. 3-Jan. 10): Inventory fell from 635,432 to 624,419
• The same week last year (Jan. 5-Jan 12): Inventory rose  from 499,105 to 505,186
• The all-time inventory bottom was in 2022 at 240,497
• The inventory peak for 2024 was 739,434
• For some context, active listings for the same week in 2015 were 924, 813 

New listings

I am excited for 2025 because new listings data can grow more this year versus last year. We were working from historically low new listings data two weeks ago due to the New Year’s holiday week, but we experienced a healthy bounce back last week.

The prediction I got wrong for 2024 was that we would see at least an 80,000 print during the seasonal peak weeks, which didn’t happen. To return to normal, we need to see seasonal peak weeks with numbers between 80,000 and 110,000. Here are the new listings for last week. over the past several years:

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

Price-cut percentage

In an average year, it’s common for about one-third of all homes to see a price cut, reflecting the usual dynamics of the housing market. We are in the seasonal decline period for price cuts and we will keep a close eye on whether this and the inventory data turn higher for 2025. 

Price cut percentages for last week over the last several years:

• 2025: 33.9%
• 2024: 32%
• 2023: 36%

The week ahead: Inflation week!

It’s inflation week again, and we will be analyzing the current perception of the data, especially since the 10-year yield has experienced a significant shift and is now nearing cycle highs. We have upcoming retail sales and housing starts data, and it will be interesting to see the builder confidence report, given that higher mortgage rates have persisted for a while.

As always, we will also monitor the important jobless claims data on Thursday, which showed a decline last week.

The interesting aspect with the Federal Reserve now is whether they will start making comments about the rise in yields or let it just take its own course. As Fed President Logan from the Dallas Fed once said, if the 10-year yield rises, we don’t have to be as restrictive with our policy.

Check out all of our weekly Housing Market Tracker articles here.

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