Last week, inflation was super hot, Fed voting members spoke hawkishly and the economic data was solid, so it’s strange to talk about rates possibly dropping below 7% for the holidays. However, after last week’s crazy bond action, rates below 7% for Halloween, Thanksgiving, Christmas or New Year’s are back in play. If you need to catch up on what happened last week in the bond market, I covered it on this episode of the HousingWire Daily podcast.
Four hings need to happen to get mortgage rates below 7%.
1. The Iran conflict ending and oil prices falling will be a big help; the last time we saw a noticeable move lower in the 10-year yield was when the first MOU deal was announced in June. However, once that fell apart in July, and especially after President Trump said there would be no deal until the midterms, all hell broke loose and yields exploded higher.
2. Any softness on the AI build-out will help bonds rally; we saw just a glimpse of a giant bleeding last week with CoreWeave, and bonds rallied hard as a result even in a week where inflation was hot and the economic data was firm. If we see any more headlines that AI companies are having a hard time getting financed, or if certain IPOs don’t happen on time, this can be a benefit to bonds when they’re above 5%. Not so much if the 10-year yield is trading between 4.30%-4.60%.
3. The Trade War 2.0 can’t get worse if we want to see rates under 7%. The Fed really takes a hawkish policy stance on the trade war. As long as we don’t impose more/higher tariffs and create more supply drama for Americans, that will be positive for rates. If we start issuing more tariffs with a higher percent collected, then it will be hard to get rates under 7%.
4. Any softness on the economic and labor side, especially with the 10-year yield above 5%, can help push yields lower and get rates under 7% again. However, since we are talking about the holidays in 2026, the jobs data over the next few months will need to surprise to the downside, since most people aren’t expecting big job gains anymore.
Now, of course, the opposite of the above is also true. If the conflict escalates, oil prices head higher, more tariffs are imposed, and the labor/economic data stay firm with no AI drama, yields can rise, and mortgage rates with them.
Mortgage spreads
Mortgage spreads are now the most important story in housing. 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, spreads, although they have worsened since the lows of 2026, have not accelerated to levels we saw in 2023 and 2024 and are slightly below 2025 levels, when they were trending toward multi-year lows.
Historically, mortgage spreads have ranged from 1.60% to 1.80%. Last week, spreads rose to 2.21%, up from 2.12% 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 8.27% today, not 7.37%.
- If we had the worst 2024 levels, mortgage rates would be 7.89% today.
- If we had the worst 2025 levels, mortgage rates would be 7.70% today.
Housing inventory
Housing inventory growth has been very tame this year, with some weeks down year over year. However, as always, when rates rise, especially above 7%, inventory can grow faster. Inventory growth has been slower than in previous years, mostly because we are closer to normal inventory levels, unlike the past few years when we were working from the lowest levels ever recorded.
Last week, inventory increased; it’s late in the year, and the seasonal decline in active listings should happen soon. Year-over-year comps also make growth easier to show, as mortgage rates were much lower at this time last year and existing home sales were heading toward a nine-month high in December of 2025. Inventory is up 5.32% year over year.
- Weekly inventory change (Oct. 9-Oct. 16): Inventory rose from 898,139 to 905,166
- Same week last year (Oct. 10-Oct. 17): Inventory rose from 856,873 to 859,424
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, since most sellers are also homebuyers, they would rather wait for lower rates. However, that hasn’t been the case in 2026; I haven’t seen much on the new-listing front, unlike the second half of 2022, when many sellers simply didn’t list their homes because of higher rates.
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: 61,401
- 2025: 60,791
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 now as rates keep rising and pricing pressure picks up. Last year, rates were 1% or more lower than they are today and demand was heading toward a nine-month high in December of 2025.
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 price-cut percentage for last week:
- 2026: 43.09%
- 2025: 41.08%
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.
For years, I have followed the same premise: housing data improves when rates are below 6.64% and head toward 6%, and worsens when rates rise above 6.64% and move past 7%. The sharp move from 6.64% to 7.60% since mid-July has really impacted housing demand, like it has in the previous few years. Now it’s about how long rates stay here and where demand bottoms out. It was a much different story at this time last year, when rates were much lower, and we were heading toward that nine-month high in December sales.
Here are the pending sales for last week over the last two years:
- 2026: 51,947
- 2025: 59,775
Purchase applications
Purchase application data, looking out 30-90 days, has softened as mortgage rates rose above 6.64% and are now at 7.37%. With higher rates, this data should show year-over-year weakness, especially now that year-over-year comps will be harder to match. This was the case last week: purchase apps were down 4% week-to-week but down 16% year-over-year.
When rates were near 6%, we had double-digit year-over-year growth; now it’s double-digit declines. This index is close to the lows we saw back in 2023, when mortgage rates went toward 8%.
Here are the stats on purchase apps so far in 2026:
- 15 positive week-to-week prints
- 22 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
- 12 negative year-over-year prints
The week ahead: World conflict, AI updates and housing data
With oil prices peaking again and over $100, we need to keep an eye on their impact on the markets as we get closer to the midterms. Any news on AI, good or bad, is in play now, after last week’s bond market action. None of the housing data we will get this week should be positive: builder survey, housing starts and pending home sales. Again, good luck to everyone until the midterms are over.
