What a rollercoaster for economic news so far in 2025! As we head into March, many wonder, can mortgage rates dip even lower than we’ve seen since Jan. 14? Treasury Secretary Scott Bessent said Friday that “The housing market is stuck right now, but it will unfreeze in weeks.” Which begs the question: can rates go even lower for spring 2025?
Since Trump won, we have said many times that the White House economic teams want to see mortgage rates going lower. Part of the policy plan to get us there is firing government workers, reducing government spending and expanding oil production to fight inflation. For now, weakness in recent economic data has been the big driver of lower mortgages. Do we realistically have legs to go lower?
10-year yield and mortgage rates
In my 2025 forecast, I anticipate 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%
The 10-year yield wrapped up Friday at around 4.22%, landing just 0.42% above the lower end of my 2025 forecast. This decline comes alongside another week of dropping mortgage rates, making it an intriguing time for those in real estate because mortgage rates above 7% consistently results in weak housing data.
Economic data has been consistently underwhelming of late, and with the 10-year yield peaking earlier this year, the slide from 4.79% to 4.22% has been a relatively common move whenever economics data gets softer. Yet, the path ahead could get tricky. It will be challenging to reach my target of 3.80% on the 10-year yield without more economic softness or a stock market sell-off that would push funds into the safety of bonds.
Keeping an eye on these trends will be essential as we navigate this evolving landscape! Let’s not forget that the Trump administration has just begun firing many people who work for the government and are looking to spend less than the previous few years.
Mortgage spreads
Today’s housing market would look entirely different if mortgage spreads hadn’t improved in 2024 and 2025. Typically, we see these spreads hover between 1.60% and 1.80%. If we were still grappling with the challenging mortgage spreads that defined 2023, we’d be facing mortgage rates a staggering 0.68% higher right now.
Conversely, if spreads aligned more with historical norms, our current mortgage rates could be anywhere from 0.82% to 0.92% lower. Imagine — if today’s spreads were back to normal levels, we would enjoy mortgage rates below 6%. What a game-changer that could be! However, one thing happening in the markets is that the spreads tend to improve lately when bond yields are higher and not too much when the 10-year yield is falling. Even with that, the spreads improving since 2023 is vital for housing.
Looking ahead to the rest of this year, I expect only a modest improvement in mortgage spreads,