Do Mortgage Rates Have Room to Drop in 2025?

Shocking Mortgage Rate Prediction for 2025!
  • The 10-year Treasury yield recently dropped to 4.22%, contributing to slightly lower mortgage rates.
  • Mortgage spreads remain above historical norms, suggesting some potential for further rate reductions.
  • Pending home sales in 2025 are lower than in 2024 but still stronger than in 2023, indicating moderate demand.
  • Price reductions have risen to 33.7%, signaling sellers’ increasing flexibility amid affordability concerns.
  • The Federal Reserve’s interest rate decisions will be a crucial factor in determining mortgage rate movements.

Mortgage rates remain a hot topic as we navigate the evolving economic landscape of 2025. With inflation concerns, Federal Reserve policy shifts, and job market fluctuations, buyers and investors alike are asking: Will mortgage rates go lower this year? This article explores key factors—including Treasury yields, mortgage spreads, housing inventory, and employment trends—that influence interest rates and how they might impact the real estate market, particularly in cities like Las Vegas.

Close-up of US Treasury bond certificate

The 10-Year Treasury Yield and Mortgage Rates

The 10-year U.S. Treasury yield is one of the most important indicators influencing mortgage rates. Banks and lenders use it as a benchmark since mortgage-backed securities often follow the direction of Treasury yields. Historically, when bond yields rise, mortgage rates climb, and when yields drop, mortgage rates tend to follow suit.

In early 2025, the 10-year U.S. Treasury yield has fluctuated between 3.80% and 4.70%, recently settling around 4.22% (Bessent, 2025). This dip has contributed to marginal declines in mortgage rates, offering some relief for potential buyers. However, whether rates will continue to decline depends heavily on investor sentiment. If economic uncertainty persists or inflation shows signs of slowing, bond investors may flock to Treasuries, pulling yields—and consequently, mortgage rates—lower.

Mortgage Spreads: Why They Matter

Mortgage spreads—the difference between mortgage rates and Treasury yields—are another crucial factor in determining borrowing costs. In healthier housing markets, spreads tend to remain within a predictable range. However, in times of uncertainty or volatility, they can widen, making mortgage rates higher than what Treasury yield movement would suggest.

During 2023 and 2024, mortgage spreads remained stubbornly elevated, reflecting risk concerns in lending markets. In early 2025, spreads have improved but still hover above historical norms. If spreads were to return to long-term averages, mortgage rates could decrease by an estimated 0.82% to 0.92%. However, significant narrowing of spreads may be difficult unless inflation becomes a non-issue or financial markets stabilize further.

Person signing mortgage loan application

Purchase Application Data: Demand Signals in 2025

Mortgage purchase applications give insight into homebuyer activity. Strong application data typically signals robust demand for homes, whereas weak numbers suggest affordability challenges and buyer hesitation.

So far in 2025, mortgage application trends have been mixed. Out of the last seven reporting weeks, two showed positive momentum, three displayed declines, and two remained essentially unchanged. However, compared to the same period in 2024, application volume is up by approximately 3%. While this is not a dramatic rebound, it reflects that even marginally lower rates are helping to improve demand compared to last year.

Real estate agent handing keys to buyer

Weekly Pending Home Sales: A Forward-Looking Indicator

Pending home sales reflect signed contracts, meaning they act as a predictive measure of future completed transactions. If pending sales rise, it suggests that home buying activity is gaining traction.

According to Altos Research, 2025 pending home sales are at 324,432—down from 337,271 in early 2024 but still ahead of 2023 levels (Altos Research, 2025). This data reinforces the idea that housing demand remains constrained but has not collapsed. If mortgage rates were to decline toward 6%, we would likely see stronger momentum as affordability improves.

Row of homes for sale in suburban neighborhood

The balance between housing supply and demand is a significant determinant of home prices and market activity. Inventory levels have increased from the record lows of 2022 but remain below pre-pandemic norms.

As of late February 2025, active inventory stood at 639,485 homes. Interestingly, this marks a slight setback from earlier in the month, suggesting that new listings are getting absorbed quicker than expected. Compared to 2023 and 2024, new listings in 2025 have been slightly stronger, but supply constraints persist. Without a meaningful rise in inventory, home prices may remain resilient despite higher mortgage rates.

Price Reductions: Are Sellers Adjusting?

In a balanced housing market, roughly one-third of available listings undergo price reductions. These reductions indicate whether sellers are willing to adjust to changing demand conditions.

So far in 2025, price reductions have risen to 33.7%, compared to 31% in early 2024 (Altos Research, 2025). This trend suggests that affordability challenges are prompting sellers to be more flexible on asking prices. If mortgage rates remain elevated, we may see further price adjustments in an attempt to attract hesitant buyers.

The Employment Market’s Influence on Mortgage Rates

A strong job market typically supports homebuyer confidence, while rising unemployment can lead to weaker housing demand. Mortgage rates often don’t see substantial declines unless job losses increase for a sustained period.

Recent labor data has shown a slight uptick in jobless claims, though the increase has not been linked to major layoffs at the federal level (U.S. Department of Labor, 2025). If unemployment trends upward, the Federal Reserve may be more inclined to cut rates sooner, which would likely place downward pressure on mortgage rates. However, if the job market remains steady, interest rate declines may be more gradual.

Federal Reserve building with American flag

Federal Reserve Policy & Interest Rate Outlook

The Federal Reserve plays a pivotal role in shaping mortgage rates through its monetary policies and short-term interest rate adjustments. While inflationary concerns persist, the Fed has signaled its willingness to react to economic slowdowns by lowering interest rates.

Some forecasts suggest the possibility of multiple Fed rate cuts amounting to as much as 1% over the course of 2025. If these cuts materialize, they could lead to corresponding declines in mortgage rates. However, the pace of these reductions will likely hinge on inflation trends and employment data.

Aerial view of Las Vegas suburban homes

How Mortgage Rate Movements Impact the Las Vegas Housing Market

Las Vegas remains one of the more interest-rate-sensitive real estate markets in the country, due in part to strong investor activity and rapid shifts in demand. In 2024, rising mortgage rates dampened price growth, making it harder for first-time buyers and investors to justify new purchases.

If mortgage rates drop closer to 6%, Las Vegas could experience a renewed rush of buyer activity. Historically, lower interest rates have led to reduced days on market and heightened competition for homes under $500,000. Industry experts like Steve Hawks suggest that Las Vegas buyers should pay close attention to rate movements before making a decision, as a small change in borrowing costs could significantly impact affordability.

Will Mortgage Rates Drop Further?

The trajectory of mortgage rates in 2025 hinges on several key factors, including Treasury yields, mortgage spreads, employment trends, and Federal Reserve decisions. While there is potential for rates to decline further, significant drops would likely require a combination of weaker economic data and more aggressive Fed policy adjustments.

For home buyers and investors, timing will be crucial. Locking in rates when they temporarily dip could provide a valuable opportunity, especially in competitive markets like Las Vegas. Staying informed and monitoring mortgage trends closely will be essential for anyone considering a home purchase in the months ahead.

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