Existing home sales have had a nice rise since mid-June, but what will it take for this sales growth trend to continue in 2026? Over the last few years, when rates drop noticeably, sales pick up, but then mortgage rates have shot up over 7% and taken away housing’s momentum. In 2026, are there key variables that can break this trend and create the first real year of home sales growth? I believe there are a few things in place that can make that happen.
Mortgage spreads and the 10-year yield
Mortgage spreads have been very damaging to housing demand over the past few years, as they’ve kept rates more elevated than normal. However, 2026 will be the first year when spreads start the year close to normal and can be back in their normal range this year
This means mortgage rates have a better shot of staying lower for longer. This usually happens when the rate-cut cycle is well underway, which it has been since September 2024. As you can see below, the spreads are roughly back to their normal range of 1.60%-1.80%; we are at 1.88%. To give you an example, if mortgage spreads were as bad as they were in 2023, rates would be over 7% today, not 6.07%.
In HousingWire’s 2026 forecast, the upper end of mortgage rates is 6.75%, meaning this is the first time in years I haven’t forecasted a 7-handle in the yearly range. For rates to return to the upper range of 6.50%-6.75%, the labor market would have to start outperforming, not underperforming. However, with better mortgage spreads, even if we head toward the upper end range of my 10-year yield forecast of 4.40%-4.60%, and because the White House ordered the sale of $200 billion of mortgage-backed securiti