Mortgage Spreads Are Capping Rates in 2025—What That Means for the Spring Housing Market

As we move into 2025, one key factor is helping keep mortgage rates from spiraling out of control: better mortgage spreads. While the housing market has battled high rates in recent years, improving spreads between the 10-year yield and the 30-year mortgage rate are offering a much-needed cap. That’s good news for homebuyers heading into the spring market.

What Are Mortgage Spreads, and Why Do They Matter?

Mortgage spreads refer to the difference between the 10-year Treasury yield and the 30-year mortgage rate. This gap fluctuates based on economic conditions and investor sentiment. Historically, spreads tend to hover between 1.60% and 1.80%, but in 2023, they widened to over 3.10% following the banking crisis, pushing mortgage rates to a painful 8%.

Fast forward to 2025, and spreads have tightened, helping to limit how high mortgage rates can climb. Had we still been dealing with the worst spreads from 2023, rates would be 0.72% higher today. On the flip side, if spreads return to normal levels, mortgage rates could drop another 0.68% to 0.78%, making homeownership more affordable for many buyers.

Mortgage Rate Predictions for 2025

While we may not see the dramatic rate drops that some homebuyers are hoping for, a return to normal spreads means rates won’t get out of control. Based on economic forecasts:

• Mortgage rates are expected to range between 5.75% and 7.25%
• The 10-year Treasury yield will fluctuate between 3.80% and 4.70%

With the 10-year yield currently at 4.49%, the key takeaway is that even as bond yields rise, mortgage rates are holding steady. That’s a major shift from 2023, when rising bond yields resulted in mortgage rates skyrocketing past 7.5%.

What Does This Mean for Homebuyers?

For those considering a purchase in Southwest Colorado, this is a promising sign. Rates hovering around 6% could significantly improve affordability, allowing more buyers to enter the market and stabilize home prices. If spreads continue to improve, we may even see mortgage rates settle at the lower end of the forecast range.

Spring 2025 Housing Market Outlook

So, how is the housing market responding to these rate conditions? Here are some key takeaways:

• Mortgage applications: Purchase application data has trended slightly positive in early 2025, signaling renewed buyer confidence despite higher rates.
• Pending home sales: Contract activity has remained stable compared to 2023, with only a slight dip from late 2024 levels.
• Housing inventory: Listings have increased year-over-year, helping to ease some of the supply constraints that have plagued the market.
• Home prices: While price growth is slowing, it remains modest, with a forecasted increase of 1.77% for 2025.

Final Thoughts: Is Now a Good Time to Buy?

If you’ve been holding off on buying a home, 2025 could be your opportunity. While rates aren’t likely to drop dramatically overnight, better mortgage spreads are preventing them from rising sharply. If the market holds steady, buyers could benefit from more inventory, stable prices, and rates that are more manageable than they were in 2023.

As always, if you're looking for real estate opportunities in Durango, Pagosa Springs, Cortez, or surrounding areas, I can help you navigate the market and make the most of current conditions. Let’s find you the right home—at the right time.

Thinking about buying or selling? Let’s chat!

For further details on market trends and to explore opportunities in Southwest Colorado, feel free to contact me. Let’s navigate these changing times together and find the best deals tailored to your needs.

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