As mortgage purchase applications approach a three-year high, it’s vital to recognize the significant role played by mortgage spreads. Without the improvement in mortgage spreads starting in 2024, we would not have gotten mortgage rates below 6.64%, which spurred the last 18 weeks of positive data. The following analysis examines this data in detail.
Mortgage purchase application data
The last three years have shown that when mortgage rates fall below 6.64% and head toward 6%, purchase application data improves, especially week-to-week. In the past few years, we weren’t able to hold rates down near 6% long enough to get real traction. This year, we have been able to hold rates below 6.64% for 18 weeks, which has been the best 18 weeks of the year. Below is what the data has shown us for the last 18 weeks:
- 11 positive week-to-week prints
- 7 negative week-to-week prints
- 18 weeks of double-digit year-over-year growth
As you can see in the chart below, we are now near a three-year high in mortgage purchase application data in December of 2025.
Below is the data for the entire year. Earlier in the year, when mortgage rates were above 6.64% we really didn’t have a positive flow of week-to-week data; it was choppy. But now, with rates under 6.64% and near 6%, the data has improved.
- 23 positive readings
- 18 negative readings
- 6 flat prints
- 44 straight weeks of positive year-over-year data
- 31 consecutive weeks of double-digit growth year over year
We can also see it in our total pending home sales data, as demand is at a multi-year high this last week.
Mortgage rates, spreads and the 10-year yield
In my 2025 forecast, I anticipated the following ranges:
- Mortgage rates between 5.75% and 7.25%
- The 10-year yield fluctuating between 3.80% and 4.70%
Mortgage spreads mattered so much this year because the 10-year yield, unlike last year, never got toward 3.60%. We have had a hard time staying below 4% for any extended period, as the Fed remains modestly restrictive and the growth rate of inflation remains above the Fed’s target. As you can see in the chart of the 10-year yield below, we haven’t spent much time under 4% this year. However, mortgage rates are still near 6% today.
Mortgage spreads
For 2025, I was looking for an improvement in mortgage spreads of 0.27%-0.41%, using a 2.54% average for 2024, and that has been achieved. Historically, mortgage spreads have ranged between 1.60% and 1.80%. If today’s spreads were as bad as they were at the peak of 2023, mortgage rates would be roughly 0.99% higher, at 7.26%. Conversely, if the spreads returned to their normal range, mortgage rates would be 0.51% to 0.31% lower than today’s level, meaning they would be 5.76% to 5.96%.
Healthy inventory growth and slower price growth in 2025
On top of the positive spread news, active housing inventory has grown year over year and price growth has slowed down in 2025. We are at the stage of the year when we see the seasonal decline in inventory. Still, the best part of 2025 has been that we found balance in housing inventory again and we no longer have the savagely unhealthy active inventory data. The percentage of inventory growth has been cut in half, from 33% to 15.26% this year, but this doesn’t change the story of solid year-over-year inventory growth, as you can see in the chart below.
As inventory growth has stayed positive, the price-cut percentage has remained higher this year than last, indicating buyers are getting better deals this year, as the chart below shows.
The week ahead: Fed meeting
We have a ton of economic data coming in the week ahead, as the government is back at work and getting back in the swing of releasing economic data, but the big event is the Fed meeting on Wednesday. Sarah and I will preview the Fed’s meeting on Monday’s episode of the HousingWire podcast.
The Fed is expected to cut rates this week, but I believe Jerome Powell will be very hawkish in his statements and lay the groundwork for a higher bar to cut rates in 2026. Now this will likely be Powell’s last Fed press event before President Trump announces the next Fed chairman although Powell holds his position until May of 2026. Regardless of who the next Fed chair is, they won’t have the hawkish tone that Powell has recently taken.
One thing is for sure: with the rate cuts that began in 2024 and better mortgage spreads, the mortgage market in 2026 has the best potential to stay near 6% longer than anything we’ve seen in the past few years.
English