Mortgage Spreads Boost Home Sales Despite High Rates

Existing home sales maintained positive year-over-year growth last week, with pending home sales data remaining steady despite elevated mortgage rates. The article highlights that improved mortgage spreads in 2026 have been crucial for housing growth, preventing the demand softening typically seen when rates exceed 7%. This contrasts with previous years, such as 2023, 2024, and 2025, where rate volatility near or above 7% hindered home sales traction.

In 2026, housing demand has shown resilience when mortgage rates remain below 6.64% and approach 6%. The current market does not require historically low rates of 3%, 4%, or 5% to stimulate sales; rates around 6% are sufficient, largely due to starting from record-low sales levels. Mortgage spreads, which represent the difference between mortgage rates and benchmark yields, widened significantly in 2023 to over 3%, a rare occurrence post-1986. Historically, spreads have typically ranged between 1.60% and 1.80%.

As a rate-cut cycle begins, mortgage spreads are expected to improve historically. This trend is why the author's peak mortgage rate forecast for 2026 was 6.75%, driven by spreads returning to more normal levels. For most of the year, mortgage rates have stayed below 6.64%. Last week, spreads were recorded at 2.01%, a slight decrease from 2.03% the previous week. The current mortgage rate of 6.60% is significantly lower than it would be if spreads were at their worst levels seen in 2023 (7.70%) or 2024 (7.32%), illustrating the impact of spread improvement.