Exploring Mortgage Spreads and the 10-Year Yield
Over the past few years, mortgage spreads have had a significant impact on housing demand by keeping rates higher than usual. However, in 2026, we are seeing spreads return to a more normal range, which could lead to lower mortgage rates for a longer duration. This shift typically occurs during a rate-cut cycle, which has been underway since September 2024. Currently, spreads are hovering around 1.88%, close to their normal range of 1.60%-1.80%. This improvement in spreads is crucial, as it prevents rates from reaching the high levels seen in 2023, where rates would have been over 7% instead of 6.07%.
In the 2026 forecast by HousingWire, the upper limit for mortgage rates is projected to be 6.75%, marking the first time in years without a forecasted 7% rate. To reach the upper range of 6.50%-6.75%, the labor market would need to show signs of outperformance. Additionally, the White House’s decision to sell $200 billion of mortgage-backed securities provides further support for rates in 2026, boosting demand.
Insights on Existing Home Sales
In the upcoming year, if mortgage rates remain at 6.25% or lower, we could witness an increase of 237,000 existing home sales compared to 2025. This potential growth signifies a positive shift in sales, following a period of stagnation. The previous year saw a rise in sales as rates dropped below 6.64%, leading to a substantial increase from 3,930,000 in June to 4,350,000 in December. Maintaining rates around 6% throughout the year could support further sales growth.
With three years of record-low existing home sales adjusted for labor force growth, the potential for growth is significant. Historically, lower mortgage rates have facilitated sales growth, even in challenging affordability scenarios. The combination of rising wage growth, cooling price growth, and declining rates has historically stimulated sales over time.
Analyzing Inventory for Sales Growth
Despite concerns about low inventory post-COVID, the current 1,180,000 active listings indicate sufficient supply to support sales growth in 2026. The efficiency of transactions and faster closing times contribute to the perception of low inventory. Having an ample supply of listings not only fosters sales growth but also offers consumers more choices and helps mitigate price surges in the housing market.
Final Thoughts
In summary, the dynamics of housing data in recent years have shown a correlation between lower 10-year and mortgage rates and increased home sales. The outlook for 2026 is promising, with the potential to keep rates around 6% for an extended period, offering a more favorable environment compared to previous years.