What’s next for housing: 7%, 8% or 9% mortgage rates?

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%

I believe two events have made the bond market act more wildly than normal: First, the MOU deal with Iran fell apart, and we started attacking Iran during market hours. Second, President Trump said we won’t get a deal with Iran until after the midterms. With no sign of the Iran conflict ending, the bond market has acted up, even as we get more oil through the Strait of Hormuz.

Let’s look at the possibility of each rate level. 

7% mortgage rates

The case for 7% rates is very simple: the conflict ends and Trade War 2.0 doesn’t get worse — those two things alone can drive the 10-year yield and mortgage rates back to 7%. But the market has to really believe this conflict is over and we need diesel prices back down again. With the Federal Reserve members blinking at higher rates, this outcome toward 7% is more likely now.

8% mortgage rates

A few weeks ago I wrote about what could get us to 8% mortgage rates; we would need the 10-year yield to get toward 5.40% and mortgage spreads to get worse. This level would also require strong economic data, a hawkish Fed and the conflict to keep going. We had all of these things to push yields higher, but mortgage spreads didn’t get worse enough last week and Friday’s jobs report missed estimates. So, 5.40% on the 10-year yield wasn’t high enough: we would need higher yields or worse spreads to get to 8%.

9% mortgage rates

Last week I wrote about the possibility of 9% mortgage rates, and thankfully, it would take a lot of work to get there. Nominal growth needs to be between 5%-8% every quarter, there can’t be any softness in the labor market, no Fed members can blink on rate hikes and the Fed hawks would need to ask for more rate hikes than they currently are. Plus, the conflict would need to last much longer than expected. Together, these factors could push mortgage rates toward 9%. If mortgage spreads were at 3.47% today, not 2.04%, then mortgage rates would be 9% already.

Mortgage spreads

Mortgage spreads are now front and center and the most important housing story.
If spreads worsen, the housing market could get much worse, affecting not only existing home sales but also housing starts for years to come. For now, the spreads have behaved like they typically do, but this is something to keep an eye on in the future. However, the move from year-to-date lows to today isn’t extreme.

Historically, mortgage spreads have ranged from 1.60% to 1.80%. Last week, spreads rose to 2.04%, up from 1.98% the week before.

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 8.64% today, not 7.57%.
• If we had the worst levels of 2024, mortgage rates would be 8.26% today. 
• If we had the worst levels of 2025, mortgage rates would be 8.07% today.

Housing inventory

Housing inventory growth has been very tame this year, with certain weeks being negative year over year. As always, it’s been hard to get inventory growth when mortgage demand is rising; it’s easier when mortgage demand is declining.

With mortgage rates over 7.50%, demand is getting hit and the rise in inventory has a bit more kick. Housing weekly inventory grew 0.75% — or 6,714 homes — but it’s late in the year, similar to 2023, when rates approached 8%. The seasonal peak will happen in October or later; new listings data hasn’t been negatively impacted yet, so the year-over-year data isn’t much lower. Last year the peak came on Aug. 1. 

• Weekly inventory change (Sept. 25-Oct. 2): Inventory rose from 895,398 to 902,112
• Same week last year (Sept. 26-Oct.): Inventory rose from 862,590 to 863,972

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 the current levels is that sellers could just decide not to list, especially with rates moving as high as they have lately.

Normally, 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: 64,002
• 2025:  64,328

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 until rates moved above 6.64%. About a month ago, I wrote that as rates rise, we should catch up and eventually pass last year’s data. We are seeing that as rates keep rising and pricing pressure picks up.  Last year, rates were 1% or more lower, so comps are easier to show growth here with rates near 7.5%.

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 forecast of -0.62% might be hard to achieve, as most home price indexes show price growth between 1% and 2%. We talked about last week on the podcast where the Case Shiller Index showed 1.9% year over year growth and FHFA was up 2.6%, but that data is old and not the current marketplace. 

Obviously, if rates were lower, my forecast would be wrong. However, with rates rising again, I might be right in 2026. 

The price-cut percentage for last week:

• 2026: 42.83%
• 2025: 41.6%

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 be reflected in the sales data. 

For years, I have had the same premise: housing data improves when rates are below 6.64%, and it worsens when rates rise above 6.64% and move past 7%. The sharp move from 6.64% to 7.57% since mid-July has been very fast, and housing demand is naturally getting hit harder. Now it’s about how long rates stay at this level and where demand bottoms out.

Just remember, in the past three years and nine months, we’ve never had a long period when rates were above 7.50%, so this will be a good test of the housing market. Last year of course, mortgage rates were well over 1% lower, and housing demand was heading toward a nine-month high in December.

Here are the pending sales for last week over the last two years:

• 2026: 57,724
• 2025:  64, 232

Purchase applications

Purchase application data, which looks out 30-90 days, has shown softness as mortgage rates have risen above 6.64% and are now above 7.5%. With higher rates, this data should see year-over-year weakness, especially now that the year-over-year comps will be harder. This was the case last week: purchase apps were down only 4% week-to-week but down 14% year-over-year.

Here are the stats on purchase apps so far in 2026:

• 15 positive week-to-week prints
• 20 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
• 10 negative year-over-year prints

The week ahead: Iran, ISM PMI data and more Fed speeches

This week the Iran conflict news will be front and center, as always. It’s October, so we are heading into the midterm election season and if nothing happens over the next six weeks, this conflict risks carrying into 2027.

We won’t have much on the economic data front this week except the ISM and PMI data, which have been hot lately and could move the markets. We will also have some Fed speeches, which have been key lately.