Mortgage purchase application details
The past three years have shown that when mortgage rates fall below 6.64% and move towards 6%, purchase application data improves, especially from week to week. In recent years we have not been able to keep interest rates near 6% long enough to gain real traction. This year we were able to keep interest rates below 6.64% for 18 weeks, which was the best 18 weeks of the year. Below is what the data has shown us over the past 18 weeks:
- 11 positive prints from week to week
- 7 negative prints from week to week
- 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 for mortgage purchase application data in December 2025.
Below you will find the data for the entire year. Earlier this year, when mortgage rates were above 6.64%, we didn’t really have a positive flow of week-to-week data; it was choppy. But now, with rates below 6.64% and near 6%, the data has improved.
- 23 positive measurements
- 18 negative measurements
- 6 flat prints
- 44 consecutive weeks of positive year-over-year data
- 31 consecutive weeks of double-digit growth, year after year
We can also see it in our overall home sales data, as demand is at its highest level in several years this past week.
Mortgage interest rates, spreads 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%
Mortgage spreads were so important this year because, unlike last year, the ten-year interest rate never came close to 3.60%. We have found it difficult to stay below 4% for any length of time as the Fed remains modestly restrictive and the inflation growth rate remains above the Fed’s target. As you can see in the 10-year yield chart below, we haven’t spent much time below 4% this year. However, mortgage interest rates are currently still around 6%.
Mortgage spreads
For 2025, I was looking for an improvement in mortgage spreads of 0.27%-0.41%, assuming an average of 2.54% for 2024, and I achieved that. Historically, mortgage spreads have fluctuated between 1.60% and 1.80%. If current spreads were as bad as they were at the 2023 high, mortgage rates would be roughly 0.99% higher, at 7.26%. Conversely, if spreads return to their normal range, mortgage rates would be 0.51% to 0.31% lower than current levels, meaning they would be 5.76% to 5.96%.
Healthy inventory growth and slower price growth in 2025
In addition to the positive news spread, active housing inventory has grown year over year and price growth has slowed in 2025. We are at the stage of the year where we are seeing the seasonal decline in inventory. Still, the best part of 2025 is that we have regained equilibrium in housing inventory and no longer have the very unhealthy active inventory data. The inventory growth rate has halved, 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 remained positive, the markdown rate this year has remained higher than last year, indicating that buyers are getting better deals this year, as the chart below shows.
Next week: Fed meeting
There’s a lot of economic data coming in the next week as the government is back to work and releasing economic data, but the big event is the Fed meeting on Wednesday. Sarah and I will preview the Fed meeting on Monday’s episode of the HousingWire podcast.
The Fed is expected to cut rates this week, but I think Jerome Powell will be very aggressive in his statements and lay the groundwork for a higher bar to cut rates in 2026. This will likely be Powell’s last Fed press event before President Trump announces the next Fed chairman, although Powell will retain his position until May 2026. Regardless of who the next Fed chair will be, they will not have the aggressive tone that Powell has recently struck.
One thing is certain: with rate cuts starting in 2024 and improving mortgage spreads, the mortgage market has the best potential in 2026 to remain near 6% for longer than anything we have seen in recent years.
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