Mortgage rates survive budget bond scare, but end the week higher

Last week, we witnessed a pivotal moment for mortgage rates and the bond market, which some pundits have said has grown increasingly aware of our rising national debt and deficits. A bond auction last week was perceived as having soft demand, prompting media outlets and market speakers to suggest that the U.S. could face consequences for its lack of fiscal discipline.

Yet, by the week’s end, bond yields rallied and mortgage rates went lower on Friday. The debt and deficit story was old news by then as President Trump’s tweets on tariffs against Apple and the European Union prompted the stock market to sell off and money went back to the safety of bonds. Are you confused yet? Let’s dive in.

10-year yield and mortgage rates

In my 2025 forecast, I anticipated the following ranges:

• Mortgage rates will be between 5.75% and 7.25%
• The 10-year yield will fluctuate between 3.80% and 4.70%

On the topic of mortgages and federal debt: Suppose the bond market is genuinely concerned about debt and deficits. In that case, why was the 10-year significantly higher in the 1990s when debt levels, debt-to-GDP ratios and deficits were comparatively lower? During that decade, the 10-year yield consistently remained above 5%, a benchmark we’ve struggled to achieve for more than just a few hours over the past decade.

As always, 65%-75% of where the 10-year yield and mortgage rates range within an economic cycle is still based on Federal Reserve policy. Two jobs reports ago, when tariffs were sending stocks down and bond yields lower, I said that if we had had no recession scare the 10-year yield should be at 4.35%. As long as the labor market remains intact, a range between 4.35% and 4.70% is normal with the current Fed policy. However, if economic and labor data significantly deteriorate, we could see the range shift lower, between 3.80% and 4.25%.

Last week, mortgage rates increased roughly 10 basis points, even with the move lower Friday.

Mortgage spreads

Mortgage spreads have been elevated since 2022 but have improved since their peak in 2023. We had a bit of drama with the spreads as the markets dealt with Godzilla tariffs, but things have improved as the market calmed down. 

If the spreads were as bad as they were at the peak of 2023, mortgage rates would currently be 0.74% higher. Conversely, if the spreads returned to their normal range, mortgage rates would be 0.76% to 0.56% lower than today’s level. Historically, mortgage spreads should range between 1.60% and 1.80%.

Purchase application data

Last week, purchase application data increased by 13% year over year, down 5% weekly. I generally focus on this data from the second week of January through the first week of May, as total volumes decline after May. Unlike last year, when the data was very negative, we have had a positive 2025 with the week-to-week and year-over-year data in the seasonal heat months.

Here is the weekly data for 2025:

• 9 positive readings
• 7 negative readings
• 3 flat prints
• 16 straight weeks of positive year-over-year data 

Total pending sales

The latest weekly data on total pending sales from Altos provides valuable insights into current trends in housing demand. Typically, it takes mortgage rates nearing 6% to foster real growth in the housing market. While total pending home sales are slightly higher than last year, it is surprising to see this data remain steady despite elevated rates in 2025. 

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

• 2025: 414,107
• 2024: 403,650

Weekly pending sales

I am adding the weekly pending sales data to this tracker starting now. While this data provides the most up-to-date week-to-week information, it can be affected by the calendar year’s volatility and any events that may occur. However, as shown below, there is some year-over-year growth.

2025: 72,312
2024: 68,451

Weekly housing inventory data

The most promising development in the housing market for 2024 and 2025 is the increase in inventory. Inventory needs to return to pre-pandemic levels for the housing market to operate more effectively. The seasonal increase in inventory is much needed as the country is working its way back to normal. Again, once we get to 2019 levels, all the low inventory talk goes away. 

• Weekly inventory change (May 9-May 16): Inventory rose from 767,274 to 787,049
• The same week last year (May 10-May 17): Inventory rose from 568,557 to 594,584

New listings data

As inventory has grown, we’ve finally got out of the two-year drought of new listing data, and we’re back above 80,000 during the seasonal peak months. I had forecasted this for last year, but it didn’t happen. I kept that forecast for 2025, and we are here today with the second print over 80,000. 

To give you some perspective, during the years of the housing bubble crash, new listings were soaring between 250,000 and 400,000 per week for many years.

• 2025: 83,143
• 2024: 72,329

Price-cut percentage

In a typical year, about one-third of homes experience price reductions, highlighting the housing market’s dynamic nature. Many homeowners adjust their sale prices as inventory levels rise and mortgage rates stay elevated.

For my 2025 price forecast, I anticipate a modest increase in home prices of approximately 1.77%. This suggests that 2025 may again see a negative real home price forecast. In 2024, my forecast of a 2.33% increase was inaccurate because it was too low, primarily because mortgage rates headed toward 6%.

The rise in price reductions this year compared to last year reinforces my cautious growth forecast for 2025. Below is a summary of the price cuts from previous weeks over the last few years:

• 2025: 38%
• 2024: 35%

The week ahead: PCE inflation, Fed presidents, home price index and headline drama

This week, we will get significant economic data, starting with key PCE inflation figures for quarterly and monthly reports. Additionally, several home price data points, which tend to lag behind the current market, are expected to indicate slowing price growth. We will also see reports on pending home sales and jobless claims. It’s worth noting that last week’s jobless claims data remained relatively stable. We won’t get jobs week until the first week of June.

Again, we might be at the mercy of crazy headlines and wild moves in the bond market, so for this short trading week, let’s see what the trade war brings us.