Housing demand has stabilized over the last two weeks as rates have fallen a tad, and we can finally see a clear path back to sub-7% mortgage rates. We survived the crazy month of October, when the 10-year had the potential to close above 5.35%, which would have created a backdrop of bond-escalation selling, sending mortgage rates above 8%. That didn’t happen, of course, as the 10-year yield held that key line!
Not only has the 10-year yield now gone below 5% — with mortgage rates closer to 7% than 8% today — but what this month has shown us is that there’s a clear path for sub-7% mortgage rates. Just the move in the last two weeks has stabilized demand in our weekly pending home sales data, so let’s take a look on this Halloween on what needs to happen to get rates lower.
10-year yield and mortgage rates
In the 2026 HousingWire forecast, I anticipated the following ranges:
- Mortgage rates between 5.75% and 6.75%
- The 10-year yield fluctuating between 3.80% and 4.60%
Last week was Fed week, and even Fed Chair Kevin Warsh said tighter policy has created financial pain for some AI companies. The Federal Reserve has been talking more and more about AI being very inflationary for many weeks now, so naturally, when AI companies are having debt-financing issues, and some are missing on their numbers, the 10-year yield has gone lower even with elevated oil prices and economic data staying firm.
However, imagine for a minute that the Iran conflict was over: oil would be trading between $67 and $82. Imagine that the trade war 2.0 doesn’t get worse and you have an AI slowdown; there’s your trinity for lower mortgage rates. Nothing too drastic, but definitely sub-7%, and we’ve all seen what mortgage demand can do when rates drop below 6.64%.
So there’s a pathway to 7%, but there’s also a pathway for rates to stay above 7% if the AI story rebounds, the conflict doesn’t end, and the trade war continues. This, of course, would need the economic data to stay very positive, as it has recently. Since Sept. 10, a clear head-and-shoulders pattern has formed in the 10-year yield so what I said above can break that lower and get us sub-7% rates.
Mortgage spreads
Mortgage spreads have worsened recently, but they’re still trending near multi-year lows. I can’t stress enough how important it is for spreads to be closer to 2% than 3%, since mortgage rates would already be over 8% now if this were not the case. Not only that, it would have been impossible to get mortgage rates near 7% again without a much bigger move lower with the 10-year yield.
That said, when the 10-year yield moves lower at times, spreads can widen after a big move up because their job is to compress volatility. Now, this does wear off over time, and we can head lower again. What you don’t want to see is the Fed suddenly changing course and starting a massive rate-hike cycle, or a credit event like the Silicon Valley Bank crisis.
Historically, mortgage spreads have ranged from 1.60% to 1.80%. Last week, spreads were flat at 2.23% from week to week.
Let’s compare last week’s mortgage rates to where they would have been over the last three years, given the 10-year yield’s current level:
- If we had the worst mortgage spread levels of 2023, mortgage rates would be 8.15% today, not 7.27%.
- If we had the worst levels of 2024, mortgage rates would be 7.77% today.
- If we had the worst levels of 2025, mortgage rates would be 7.58% today.
Weekly pending sales
Our pending home sales data provides a week-to-week perspective, though holidays and short-term fluctuations can affect results. This weekly pending sales data typically takes 30-60 days to reflect in sales data.
The key for the last two weeks: lower rates even above 7%, have stabilized demand, as our weekly pending home sales are still higher than two weeks ago. That is all we should take from this move, and we will see how rates affect the data going forward. Rule of thumb for the last three years and 10 months: housing demand typically grows when rates are under 6.64% and heading toward 6%, and doesn’t show growth when rates are over 6.64% and heading above 7%.
Here are the pending sales for last week over the last two years:
- 2026: 52,050
- 2025: 55,214
Purchase applications
Purchase application data, which looks out 30-90 days, has softened as mortgage rates rose above 6.64% and are now above 7%. I expected some week-to-week growth last week, as our tracker showed growth too; we did have a 4% week-to-week gain, but it’s still down significantly year over year. When rates were closer to 6%, every week except one showed year-over-year growth.
Here are the stats on purchase apps so far in 2026:
- 16 positive week-to-week prints
- 23 negative week-to-week prints
- 5 flat week-to-week prints
- 10 weeks of double-digit year-over-year growth
- 25 weeks of positive year-over-year growth
- 14 negative year-over-year prints
Housing inventory
Housing inventory growth has been very tame this year, with some weeks down year-over-year. In fact, this is the lowest inventory growth in some time. Mostly because rates were lower at the start of the year and we are closer to normal. However, higher mortgage rates and weaker mortgage demand create more inventory, and the year-over-year comps are much easier now than early in the year. These lower comps will be here until July of 2027.
Inventory growth is running at 6.78% even with easier comps.
- Weekly inventory change (Oct. 23-Oct. 30): Inventory rose from 911,956 to 914,833
- Same week last year (Oct. 24-Oct. 31): Inventory fell from 862,924 to 856,751
New listings
New listings are in their typical seasonal decline; 2026 has been the healthiest new-listings year since 2022, with over 80,000 at a few points this year. One concern I have with rates at current levels is that some sellers might not list because most sellers are also homebuyers. That hasn’t happened yet in the data, so still a very heatlhy year for new listings data.
In a normal environment, new listings range from 80,000 to 100,000 per week during peak periods. For context, during the housing bubble years, new listings ranged from 250,000 to 400,000 per week for several years.
Here is last week’s new listings data for the past two years:
- 2026: 57,265
- 2025: 55,716
Price-cut percentage
Typically, about one-third of homes see price reductions before they sell, reflecting the housing market’s dynamic nature. Overall, price-cut percentages this year have been lower than last year. This was true until rates moved above 6.64% and then above 7%, demand fell, and the year-over-year price-cut percentage rose 1% year over year.
In my 2026 home-price forecast, I called for a national decline of -0.62% for the year. Home-price growth really isn’t going anywhere this year, and my -0.62% forecast may be hard to achieve, since most home-price indexes show growth between 1% and 2%. The latest Case Shiller home price report showed 2.1% growth year over year, but it lags our current data by a few months.
The price-cut percentage for last week:
- 2026: 43.%
- 2025: 42%
The week ahead: Jobs week, oil, AI and the midterms
We have a lot of variables this week that can move rates, more than I can count, and they’re big!
We survived the worst-case situation in October, but if this conflict continues, the trade war worsens, and economic data stays firm with an AI rebound, rates could stay elevated. However, today I laid the case for sub-7% rates, and Monday’s episode of the HousingWire Daily podcast will discuss this battle between AI and housing. It will be interesting to see whether the head-and-shoulders pattern we’re seeing with the 10-year yield holds or breaks lower.
This week will be a good test of the bond market’s appetite for bonds now that the AI god has shown some weakness. And now, picture this environment with no more conflict and the trade war not getting worse, we would have already been under 7% today.
