Mortgage Spreads Act as Housing Market Stabilizer in 2026, Keeping Rates Below 7%

In 2026, the housing market is experiencing a period of stability largely attributed to the behavior of mortgage spreads, which have effectively kept average mortgage rates below the critical 7% threshold. This has been instrumental in maintaining housing demand and sales volumes, even as weekly tracker data shows typical seasonal slowdowns when rates approach 6.64%. In prior years, a comparable 10-year Treasury yield would have likely pushed mortgage rates well above 7%, leading to negative year-over-year sales trends. However, the current normalization of mortgage spreads has provided a crucial buffer, allowing for modest positive year-over-year sales gains for the second consecutive week.

Mortgage spreads, which represent the difference between the yield on U.S. Treasury bonds and the interest rate on mortgages, have historically fluctuated. In 2023, these spreads widened dramatically, exceeding 3% by the publication's tracking methods. This level was unprecedented since 1986 and was primarily driven by the financial instability stemming from the Silicon Valley Bank crisis and the Federal Reserve's aggressive monetary policy, which included continued interest rate hikes. These factors combined to push mortgage rates above 8% in 2023.

In stark contrast, 2026 has seen a significant tightening of mortgage spreads. This has allowed mortgage rates to remain under 7% for the entirety of the year. Historically, mortgage spreads have typically ranged between 1.60% and 1.80%. While the most recent data shows spreads at 2.01%, a slight increase from 2.0% the week prior, this figure remains considerably tighter than the extreme levels observed in 2023. To illustrate the impact of these spread dynamics, if the worst spread levels of 2023 were in effect today, mortgage rates would stand at approximately 7.84% instead of the current 6.74%. Similarly, applying the worst spread levels from 2024 would result in a rate of 7.46%, and from 2025, a rate of 7.27%.

The 2026 HousingWire forecast had anticipated mortgage rates to fall within the 5.75% to 6.7% range. The current market conditions, bolstered by the more favorable mortgage spreads, are aligning with this projection. The stability in borrowing costs, directly influenced by these spreads, is preventing the sharp year-over-year declines in sales that have characterized periods when rates have breached the 7% threshold for extended durations. Consequently, the resilience of the current housing market is heavily reliant on the continued favorable behavior of mortgage spreads, which are acting as a stabilizing force, ensuring that borrowing costs remain accessible enough to sustain buyer interest and transaction volumes.