Treasury Yields Hit 2026 Peak, Mortgage Rates Stay Below 7%

Treasury yields reached a 2026 peak of 4.75% this week, influenced by rising oil prices stemming from the conflict in the Middle East. This surge in yields typically correlates with an increase in mortgage rates. However, mortgage rates have experienced a slight cooling, providing a temporary reprieve for the summer homebuying season. On Tuesday, the average rate for a 30-year conforming loan stood at 6.92%, a decrease of 2 basis points from the previous week, according to HousingWire’s Mortgage Rates Center. Similarly, rates for 30-year Federal Housing Administration (FHA) loans declined by 2 basis points to 6.61%. In contrast, rates for 30-year jumbo loans saw a marginal increase of 1 basis point, reaching 6.95%.

Despite the upward pressure from Treasury yields, mortgage rates have been kept below the 7% threshold due to the current mortgage spreads. HousingWire Lead Analyst Logan Mohtashami explained that while mortgage spreads have widened to 2%, which is higher than their historical average of 1.6% to 1.8%, they are not yet at levels that would significantly inflate mortgage rates. Mohtashami calculated that the worst mortgage spread levels observed in 2023 would currently translate to rates of 7.98%, while similar conditions in 2024 and 2025 would result in rates of 7.60% and 7.41%, respectively. This indicates that the current spread levels are acting as a buffer against more substantial rate hikes.

An additional factor contributing to housing affordability this year, as noted by Mohtashami, is the trend of wages outpacing home-price growth over the past two years. While national nominal home prices have not experienced significant declines, their growth has been modest, averaging 1%-2% annually. This slower appreciation, coupled with wage increases, has improved overall housing affordability. Mohtashami contrasted this with previous years, suggesting that if home prices had grown at higher rates, such as 10% and 19% in 2020 and 2021, the current market would be less healthy and affordability would be significantly lower.

Despite the relative stability in mortgage rates, overall mortgage demand experienced a notable decline last week. Application activity dropped by 6.4%, with a substantial 10% decrease specifically in refinance applications. This dip in demand occurred as mortgage rates had climbed to their highest levels in nearly a year prior to the slight cooling observed this week. The impact of rising rates has been significant enough to be cited by at least one major lender as a primary reason for recent layoffs, underscoring the sensitivity of the housing market to interest rate fluctuations.