Mortgage spreads are the only thing keeping rates under 7%

Mortgage spreads are once again the unsung hero for housing in 2026 because they are the sole reason why mortgage rates have been under 6.65% the entire year! Last week, the benefits of mortgage spreads being close to normal were very evident: if we currently had the highest levels of mortgage spreads in 2023, 2024 and 2025 with the 10-year yield at this level, mortgage rates would be over 7%. We all know that the housing market hasn’t been able to grow with rates over 7%.

Mortgage spreads

Mortgage spreads have improved over the last few weeks and they are almost back to the lows in 2026, which is a multiyear low. Even with the oil shock and market drama, spreads haven’t gotten close to the levels seen in 2023 or 2024. The recent high was 2.11%, a big improvement over prior years.

Mortgage rates between 5.75% and 6.75%

The 10-year yield fluctuating between 3.80% and 4.60%

Last week the 10-year yield came close to testing recent highs as The weekly pending sales data is still positive year over year — even though mortgage rates rose last week — but we did see a week-to-week decline. We have entered the seasonal peak period for pending home sales and having back-to-back weeks of positive year-over-year data can be attributed to better mortgage spreads in 2026.

Weekly pending sales usually take 30-60 days to hit the sales data. Typically, mortgage rates above 6.64% and those breaking over 7% really impact the data negatively. Under 6.25% has been the sweet spot over the past several years, excluding short-term variables.

Weekly pending sales last week over the last two years:

• 2026: 78,649
• 2025: 71,037

Housing inventory

Inventory growth has been slowing down since mid-June 2025. Two weeks ago, we had a nice pickup, but this week we saw a small decline from the previous week. 

Inventory growth is running at 2.33% year over year, down from 33% last year, but even if we go negative year over year for some weeks, we are currently in a much better spot with inventory, which is at a multiyear high with our data and far from the savagely unhealthy levels of 2021 and early 2022. 

• Weekly inventory change: (April 27- May 1): Inventory fell from 765,048 to 761,604
• Same week last year: (April 25-May 2): Inventory rose from 728,758 to 744,228

Price-cut percentage

Two weeks ago, the price-cut data took a bigger dive than I expected. Last week, it made a comeback and if I average the last two weeks together, it looks right to me. Price cut percentage on average has been lower year over year — not by much, but it’s still slightly lower.

Typically, about one-third of homes undergo price reductions before they sell, reflecting the dynamic nature of the housing market. 

In my 2026 home-price forecast, I had a negative 0.62% call for the year nationally. However, mortgage rates were lower than I thought they would be at the start of this year, and the FHFA’s announced The week ahead: Iran, jobs week, Fed speeches and new home sales

We have a busy week of events and economic data ahead, so this will be a good test for the bond market and mortgage rates as the Iran war continues and oil prices remain over $100.

Regarding jobs, as long as job growth is above 30,000 per month, the Fed won’t flinch from its hawkish stance on no more rate cuts this year, as long as the war continues. From now on, under Kevin Warsh, speeches by voting and non-voting Fed members will matter as this will be a true civil war within the Federal Reserve.