US pending home sales for February 2025 increased by 2.0%, surpassing the expected 1.0%. The prior figure was -4.6%, with year-over-year transactions down by 3.6%, an improvement from the previous -5.2%.
The index now stands at 72.0, up from a low of 70.6. The National Association of Realtors indicated that despite the monthly rise, contract signings remain below normal historical levels.
Outlook For Mortgage Rates
The Federal Reserve’s forecast for slower economic growth may lead to moderate decreases in mortgage rates, but high national debt is expected to limit any drastic falls. Average mortgage rates are predicted to be 6.4% in 2025 and 6.1% in 2026.
While pending home sales in February managed to post a 2.0% monthly gain—an improvement from the previous drop of 4.6%—levels remain well below what would be considered typical. The index is now at 72.0, only marginally higher than January’s 70.6, signalling that although the pace of activity has picked up slightly, the broader trend remains subdued. Year-over-year comparisons reflect the same: transactions are still down by 3.6%, though less so than the previous 5.2% shortfall. The downtrend has moderated, but not reversed.
The Federal Reserve has indicated that its expectations for economic performance have softened a little. Growth is still projected, just not as strongly. And while there’s been talk of mortgage rates easing, this is not expected to happen quickly or dramatically. High levels of government debt continue to be a counterweight, preventing yields from falling sharply. Officially, the average 30-year mortgage rate is projected at 6.4% next year and 6.1% the year after, which is still quite elevated by post-2008 standards.
So what does this all mean from our perspective? The real estate market is showing a faint recovery signal, but it’s not on firm footing. We’re seeing a market that wants to gather momentum but seems unable, at least for now, to build the necessary strength. These types of releases often act as quiet validators—or disqualifiers—for longer-dated rate assumptions already built into pricing. If anything, the data suggest the soft landing narrative remains intact, but no firm support line has been re-drawn.
Implications For Market Strategy
What stands out to us is the disconnect between nominal gains and the underlying pace of normalisation. These aren’t the kinds of numbers that will jolt policy views or force quick repricing. Volatility further out along the curve may settle back, not because participants feel comfortable, but rather because the risk-adjusted benefit of directional moves is currently small.
For us, that means positioning can tilt selectively rather than aggressively. For shorter durations, the picture stays muddled—price swings may continue to chase marginal data points, which do matter in the near term, even when they don’t shift the broader direction. It’s a market rewarding precision, not size.
On the longer end, the case rests more on how participants weigh persistent inflation against restrained demand. With housing showing this kind of tepid activity even amid nominal interest rate declines, there’s little on offer to make us believe aggressive easing is near. That keeps long exposures sensitive and keeps convexity preference balanced.
We’re closely watching how related sectors adjust—mortgage credit, consumer volumes, and REIT activity—to help gauge whether this minor uptick is part of a broader trend. For now it looks more corrective than structural. Rate path expectations might hold steady short-term, but the constraints around higher-for-longer are tightening. That’s where the opportunity sits—in isolating the few points where market rates might move too tightly around policy messaging, providing clearer entry timing.
