Can Government Job Cuts Lead To Lower Mortgage Rates For Spring?

Could the loss of jobs in the government sector and the withdrawal of funding from the economy significantly increase the unemployment rate and a surge in jobless claims? If this happens, will we see lower mortgage rates this spring?

It’s an intriguing thought, especially considering how this aligns with White House officials’ strategy to boost labor supply, reduce aggregate demand, and potentially drive down the 10-year yield.

I have been delving into this topic for a while now and I ook another deep dive in this recent episode of the HousingWire Daily podcast. The government’s actions impact the livelihoods of many Americans — not just through layoffs of federal workers but also by cutting funding that will result in more jobs being lost. It feels like a broader game plan is at play here, worth exploring as we navigate these economic changes together.

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%

So far in 2025, we have consistently been near the upper end of the year’s forecast. However, last week saw a decline in mortgage rates due to softer economic data, which led to an influx of money into the bond market as stocks sold off on Friday. Since 2022, whenever mortgage rates have approached 6% it’s because the bond market is concerned about the economy slowing down.

Currently, with the economic data available, the 10-year yield and Fed policy align reasonably well. However, the bond market may be concerned that if the unemployment rate rises, particularly with jobless claims increasing due to government layoffs and more negative impacts from less money circulating in the economy, we could see more money flowing into bonds, sending yields and mortgage rates lower.

We need to be more mindful of the labor data as we go further into 2025. Each year, millions of people are fired from the private sector. However, if we focus on government workers and government contractors, it’s likely that the unemployment rate will rise in 2025. This increase could challenge the Federal Reserve‘s target limit of 4.3%.

The White House is looking for a lower 10-year yield and the bond market has in the past gotten ahead of the Fed when it smells an economic growth scare, this has meant the 10-year yield and mortgage rates go lower. As you can see in the chart below, we are 36 basis points lower than the peak of what we saw on Jan. 14.

Now let’s look at the rest of the data impacting the housing market. 

Mortgage spreads

The housing market would be having a much different conversation today if mortgage spreads hadn’t improved in 2024 and now in 2025. 

Historically, these spreads range between 1.60% and 1.80%. If we were experiencing the worst mortgage spreads of 2023, mortgage rates would be 0.77% higher today. Conversely, current mortgage rates would be 0.73% to 0.83% lower if the spreads were normal. If we had historically normal spreads today, we would have 6% mortgage rates, so we don’t even need too much help from the 10-year yield if that is the case.

However, for 2025, I am only looking for a 0.27%-0.41% improvement on mortgage spreads using an average of 2.54% level from 2024. So we are not far from the forecast being hit — the trick is holding those levels for the entire year. 

Purchase application data

Purchase application data has been slightly negative so far this year:

• 2 positive readings  
• 1 flat reading 
• 3 negative reading

Last week, the weekly data was down 6% weekly but up 7% year over year. We have had better year-over-year data with purchase apps the previous two weeks, even with adverse weekly reports. Last year, when rates ranged between 6.75% and 7.50%, the purchase application data showed 14 negative, two positive and two flat readings.

We will monitor the data closely in February and discuss this and other housing economic topics at our big Housing Economic Summit on Feb. 26 in Dallas.

Weekly pending sales

The latest weekly pending contract data from Altos Research offers valuable insights into current trends in housing demand. This dataset has shown a notable improvement since the summer of 2024 and toward the end of the year, it showed year-over-year growth.

However, as mortgage rates started to rise late into 2024 and stay elevated in 2025, it has facilitated a slight decline in pending sales year over year from where we had been growing. We are still showing higher growth versus 2023 levels, but not by much. Our housing data gets better when mortgage rates are near 6%, so we aren’t there yet for 2025 and spring is knocking at the door.

Weekly pending contracts for the past week over the past several years:

• 2025: 312,742
• 2024: 325,054
• 2023: 310,134

Weekly housing inventory data

The best story for housing has and will always be the housing inventory growth working from the historically low levels we saw in 2022. We are about to get the seasonal increase in inventory soon; hopefully, in the upcoming years, we can get inventory back to historically normal levels as a nation rather than having only eight states get there. Last week showed mild week inventory growth.

• Weekly inventory change (Feb. 14-Feb. 21): Inventory rose from 637,991 to 640,221
• The same week last year (Feb. 16-Feb. 23): Inventory rose from 493,987 to 497,657
• The all-time inventory bottom was in 2022 at 240,497
• The inventory peak for 2024 was 739,434
• For some context, active listings for the same week in 2015 were 958,304

New listings data

The new listing data from Altos Research reflects homes that come to the market without an immediate contract, providing us with a real-time view of any selling pressure in the market. The last two years were the two lowest new listings data years in history. The last two years were also not healthy years for the latest listings data.

Last year, I forecast we would get at least 80,000 new listings per week during the seasonal peak months, but it didn’t happen. This year, I believe we should hit that target. Note that this data line ran between 250,000-400,000 per week during the housing bubble crash years.

The national new listing data for last week over the previous several years:

• 2025: 53,861
• 2024: 51,387
• 2023: 44,864

Price-cut percentage

In an average year, about one-third of all homes typically experience a price cut, which reflects the usual dynamics of the housing market. As inventory increases and mortgage rates stay elevated, the price cut percentage data has been higher than when rates were lower.

For 2025, I am forecasting home-price growth of 1.77%, indicating another year of negative real home-price growth. As inventory increases and mortgage rates stay elevated, negative real home-price growth should be in the works for 2025. The price cut percentage data has been increasing earlier this year than in other years, so my forecast for now looks to be intact. If rates fall in the future we can revisit the weekly data. 

Price-cut percentages for last week over the previous several years:

• 2025: 33%
• 2024: 30%
• 2023: 31%

The week ahead: Fed speeches, PCE inflation report, home price data and more

This week we have a few Fed presidents speaking and Logan of the Dallas Fed, speaking on Tuesday, could provide an interesting day of quotes. We also have some bond auctions, home price data and durable goods. We are going to be on jobless claims alert for the rest of the year to see whether government layoffs and future money being withdrawn from the economy has a spillover effect of increasing the jobless claims data. Last week we did see an increase above estimates.

We also have the Federal Reserve’s main inflation report being released this week: PCE. The PCE inflation report has been adjusted to show slightly lower inflation levels than what people were concerned about earlier in the month. However, it will be important to observe how the bond market reacts to this report, especially given the current labor market news.