Improvement in mortgage spreads since 2023 has been pivotal in driving a trend of positive year-on-year growth in purchase applications for 2025. This growth is attributed to a stabilization of stock and bond markets that followed a period of volatility, which had pushed mortgage spreads negative and increased mortgage rates. Historically, elevated spreads suggest that current rates would be significantly higher without recent improvements. Looking ahead, the potential for further reductions in mortgage rates relies on market stability and Federal Reserve actions to cut rates.
Mortgage spreads, the difference between 10-year Treasury yields and 30-year mortgage rates, have shown improvement since 2023, influencing positive trends in purchase applications.
The stability of stock and bond markets has allowed mortgage spreads to improve, leading to nearly 15 weeks of positive growth in purchase application data.
Without the mortgage spreads improvement observed since 2023, the trend of increasing purchase applications in 2025 would likely not have occurred.
For mortgage rates to improve in the future, the markets need to remain stable, and more Fed rate cuts should be implemented into the system.
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