Weekend Talking Points - 'High Five'

Last week, average 30-yr mortgage rates dropped to 5.99% — a near 4-year low. But transaction volumes haven’t significantly picked up yet. What’s the problem? Time. Refis can be done quickly, but buying a home takes months (from the initial decision to start looking.) Plus, it’s still the low season. If rates can stay this low into spring, buying will bloom.

Average 30-yr mortgage rates below 6%. Yes! We finally got here! (But can we stay here?) According to Mortgage News Daily, the average mortgage rate dropped to 5.99% for a couple of days earlier this week. That’s the lowest level we’ve seen in nearly four years!

It’s hard to say exactly what pushed rates into the fives, but it does seem that the “risk-off” trade (selling stocks and buying bonds) played a role. Sector by sector, equity investors are having panic attacks about the potential for AI to destroy business models. [Mortgage News Daily]

TP: The yield on the 10-year US Treasury bond approached 4%, and the mortgage spread (average mortgage rate minus 10-Yr UST yield) narrowed to 1.95%. We’re now approaching the historical range for the mortgage spread (1.60%-1.80%), so further improvement in mortgage rates is going to need to come from lower bond yields, rather than spread compression.

Case-Shiller: I think the media got this all wrong. “Home price growth continues to decelerate!” the headlines proclaimed, focusing on the modest 1.3% year-over-year growth in the national home price index. But there were two important things that most of the outlets missed:

1. The index rose 0.4% month-over-month in December 2025, and that follows similar MoM growth in both October and November 2025. What does that mean? Over the last three months, home prices have been growing at an annual rate of 5.3%! In other words, home price growth is actually accelerating!!! [More on this later]
2. 1.3% isn’t much. I get it. But keep in mind that home prices have risen by 55% over the last 6 years! It’s very common for high growth periods to be followed by slower growth periods. But price growth still remained positive in 2025. In fact, since 1942 home prices have increased 76 times, been flat once, and fell only 7 times — an enviable investment record.

TP: What has changed in the last 3–4 months to make price growth shift upward? Mortgage rates! In the middle of 2025 — when prices were falling MoM pretty much everywhere — rates were in the high sixes. But then they started falling in August, and that’s when the price momentum did a volte face.

State of the Union: nothing new for housing. Given all the focus on improving housing affordability, I expected that President Trump would unveil something designed to shock & awe. Instead, he reiterated his plans to keep big investors out of the single family housing market and increase the number of new homes being built. And we’re still waiting on details for those.

ADP: Weekly job growth picking up slowly. Over the four weeks ending February 7, private employers added an average of 12,750 jobs per week. That’s a good deal better than the 4–5K/week averages we were seeing a month ago. But it’s still not much. 4 X 12,750 = 51,000 jobs per month, which is not much at all for an economy of our size.

On the Case (Shiller) in December 2025

Annual price growth for Case-Shiller’s seasonally-adjusted national index eased further to +1.3% YoY in December 2025. (We started the year at +4.2% YoY!) That doesn’t seem very exciting until you look under the hood: 1) price growth has been 0.4%-0.5% month-over-month for the last three months, and 2) the majority of Big City indexes are now growing MoM. Why? Lower rates.

As we do each month, we looked at the 20 Big City indexes in detail. Here’s what we found:

• Only 1 of the 20 big city indexes saw their SA indexes decline MoM in December 2025 (way down from 16 in June 2025). And that price drop was modest: Denver (-0.2% MoM). [See bar chart below.]
• The largest increases came from San Diego (+0.86% MoM), Chicago (+0.72% MoM), Tampa (+0.66% MoM), and Phoenix (+0.58%). Tampa, San Diego and Phoenix were seeing prices drop MoM for most of 2025, so this is an important reversal.
• Nine of the 20 big cities are still seeing YoY price declines in their SA indexes, but most of these are very modest: Tampa (-2.8% YoY), Denver (-2.1% YoY), the rest down less than 2%.
• Six cities made new all-time highs in December 2025: Charlotte, Chicago, Cleveland, Minneapolis, New York City and San Diego.
• Six cities’ price indexes are still below their mid-2022 peak levels: San Francisco (-5.7%), Phoenix (-3.6%), Denver (-3.1%), Portland (-1.9%), Seattle (-1.6%) and Dallas (-1.5%).

Reminder: The Case-Shiller index is the gold standard for measuring home price growth because it uses the repeat sales method (looking at ‘pairs’ of transactions for the same home) to more accurately gauge true appreciation. However, this accuracy comes at a cost: a nearly two-month time lag.

Bond and Mortgage Market

Over the last week, the yield on the 10Y UST flirted with 4%, and average mortgage rates dropped into the high 5% range. A refi boomlet is already underway; if mortgage rates can move to within 5.50–5.75%, millions of additional loans would be ‘refiable’. While we have yet to see a significant increase in transaction volumes, I think it’s coming: the combination of lower rates and (in many markets) lower prices has significantly improved affordability.

Note: The Fed Funds Rate policy range is currently 3.50–3.75%. The probabilities below come from the CME Group website and are implied from the Fed Funds Rate futures market.

• March 18 FOMC Meeting: 96% probability that the Fed Funds Rate target range is kept at 3.50–3.75% (was 94% a week ago). In other words, no rate cut at the March FOMC meetings.
• April 29 FOMC Meeting: 82% probability that the Fed Funds Rate target range is kept at 3.50–3.75% (was 79% last week). In other words, no rate cut at EITHER the March or April FOMC meetings. 17% probability that rates will be 25 basis points below current (was 21% last week), which implies a 25 bps rate at the April meeting.

Inspiration
How often do you make money owning a home? Over 90% of the time. In fact, since 1942 home prices have increased in 76 years, been flat once, and fell in only 7 years.

They Said It

“Another pillar of the American dream that has been under attack has been home ownership. With us tonight is Rachel Wiggins, a mom of two from Houston. She placed bids on 20 homes and lost all of those bids to gigantic investment firms that bypassed inspection, paid all cash and turned all those houses into rentals, stealing away her American dream. She was devastated. Stories like this are why last month I signed an executive order to ban large Wall Street investment firms that are buying up thousands of single family homes. And now I’m asking Congress to make that ban permanent, because homes for people, really that’s what we want, we want homes for people, not for corporations. Corporations are doing just fine. Rachel, thank you very much. Good luck with your home. You’ll get one soon.” — President Trump’s State of the Union address

“Over the last three years, hiring has slowed sharply. And while pay growth has stabilized at levels higher than those seen before the pandemic, the payoff from changing jobs has fallen to its lowest level in ADP data going back to 2017. What this means for the labor market is that workers and employers, for now, are sticking together. To quantify this job stickiness, we measure the number of quits and layoffs divided by the total level of employment in the previous month to get the rate of employee turnover. Since the Great Resignation of 2021–2022, the pace of turnover has slowed steadily. In January, it was at its lowest level in nine years.” — Nela Richardson, ADP’s Chief Economist