Halloween has arrived early for the housing market. The bond market has been particularly volatile for weeks, and last week’s events were so unpredictable that we can now speculate on the likely mortgage rates: are we looking at 7%, 8%, or even 9%? Buckle up as we embark on a frightening ride down scary-rate lane, with Chuckie at the wheel, Jason riding shotgun, and Freddy Krueger waiting for us to drift off.
10-Year Yield and Mortgage Rates
In my 2026 HousingWire forecast, I projected the following ranges:
- Mortgage rates between 5.75% and 6.75%
- The 10-year yield fluctuating between 3.80% and 4.60%
Two significant events have caused unusual movements in the bond market: First, the collapse of the MOU deal with Iran triggered military actions during market hours. Second, President Trump indicated we won’t reach an agreement with Iran until after the midterms. With no signs of resolution in the Iranian conflict, the bond market has remained unsettled, despite increasing oil flow through the Strait of Hormuz.
Let’s examine the potential outcomes for mortgage rates.
7% Mortgage Rates
The case for 7% mortgage rates is straightforward: if the conflict ends and Trade War 2.0 doesn’t escalate, those factors alone could push the 10-year yield and mortgage rates down to 7%. However, the market must genuinely believe that the conflict is resolved, and we need diesel prices to decrease. With Federal Reserve members apprehensive about higher rates, a move toward 7% seems more plausible now.
8% Mortgage Rates
A few weeks ago, I discussed the conditions necessary for mortgage rates to hit 8%. This scenario requires the 10-year yield to approach 5.40% and for mortgage spreads to worsen. Additionally, robust economic data, a hawkish Fed, and the continuation of the conflict would be essential. While we had the necessary elements to elevate yields, mortgage spreads didn’t widen enough last week, and Friday’s jobs report missed expectations. Therefore, achieving 5.40% on the 10-year yield isn’t sufficient without higher yields or deeper spreads to attain 8% mortgage rates.
9% Mortgage Rates
I recently explored the prospect of 9% mortgage rates, and fortunately, reaching that point would require significant factors to align. Nominal growth would need to fall between 5% and 8% quarterly, the labor market must remain strong, no Federal Reserve members can waver on rate hikes, and hawkish Fed members would need to advocate for additional rate increases. Furthermore, the conflict must persist longer than anticipated. If mortgage spreads were at 3.47% today instead of 2.04%, we could be looking at 9% mortgage rates already.
Mortgage Spreads
Mortgage spreads are currently a crucial element in the housing market narrative.
Worsening spreads could negatively impact the housing market for years, affecting both existing home sales and new housing starts. While spreads are behaving as expected for now, it’s something to monitor. The movement from year-to-date lows to current figures isn’t overly dramatic.
Historically, mortgage spreads have fluctuated between 1.60% and 1.80%. Last week, they increased to 2.04%, up from 1.98% the previous week.
Let’s look at last week’s mortgage rates compared to where they might have stood over the past three years, given the current level of the 10-year yield:
- With the worst mortgage spread levels of 2023, mortgage rates would be 8.64% today, not 7.57%.
- If we considered the worst levels of 2024, mortgage rates would be 8.26% today.
- For the worst levels of 2025, mortgage rates would sit at 8.07% today.
Housing Inventory
This year’s growth in housing inventory has been quite modest, with some weeks even showing negative growth year over year. Inventory growth is often challenging to achieve when mortgage demand rises; it’s easier when demand declines.
With mortgage rates surpassing 7.50%, demand is taking a hit, leading to a more noticeable increase in inventory. Weekly housing inventory has grown by 0.75% — an increase of 6,714 homes — yet we are late in the year, following a pattern similar to 2023 when rates approached 8%. The seasonal peak should occur in October or later; new listings data has not been adversely affected yet, so year-over-year figures aren’t significantly lower. Last year’s peak occurred on August 1.
- Weekly inventory change (Sept. 25-Oct. 2): Inventory rose from 895,398 to 902,112
- Same week last year (Sept. 26-Oct.): Inventory increased from 862,590 to 863,972
New Listings
New listings are experiencing their typical seasonal decline; 2026 has seen the healthiest levels of new listings since 2022, with over 80,000 at several points this year. However, I am concerned that sellers may choose not to list with rates climbing so high recently.
Typically, new listings range from 80,000 to 100,000 per week during peak times. For comparison, during the housing bubble years, new listings fluctuated between 250,000 and 400,000 per week for multiple years.
Here’s last week’s new listings data for the past two years:
- 2026: 64,002
- 2025: 64,328
Price-Cut Percentage
Generally, about one-third of homes experience price reductions before selling, highlighting the dynamic nature of the housing market. Price-cut percentages this year have been lower than last year until mortgage rates surpassed 6.64%. About a month ago, I predicted that as rates rise, we would eventually surpass last year’s data. This is becoming evident as prices stabilize and rates continue to climb. Last year, rates were over 1% lower, making it easier to show growth against comparable data at rates near 7.5%.
In my 2026 home-price forecast, I projected a national decline of -0.62% for the year. However, with home-price growth stagnating this year, that forecast might be challenging to achieve, as most home price indices currently indicate growth between 1% and 2%. As we discussed last week on the podcast, the Case Shiller Index showed year-over-year growth of 1.9% and the FHFA index rose 2.6%, but that data is outdated and not reflective of the current marketplace.
Of course, if rates were lower, my forecast could be off. However, with rates climbing again, I might be on track for 2026.
The price-cut percentage for last week:
- 2026: 42.83%
- 2025: 41.6%
Weekly Pending Sales
Our pending home sales data offers a week-to-week look, although holidays and short-term fluctuations can impact results. This data usually takes about 30-60 days to reflect in actual sales numbers.
For years, I’ve maintained the same premise: housing data improves when rates are below 6.64% and deteriorates when rates rise above this threshold and move past 7%. The rapid shift from 6.64% to 7.57% since mid-July has been stark, and housing demand is inevitably being affected. The real question is how long rates will stay at this level and when demand will bottom out.
Over the past three years and nine months, we haven’t sustained long periods where rates were above 7.50%, so this will serve as a critical test for the housing market. Last year, mortgage rates were over 1% lower, and housing demand was peaking toward a nine-month high in December.
Here are the pending sales from last week over the last two years:
- 2026: 57,724
- 2025: 64,232
Purchase Applications
Data on purchase applications, which looks ahead 30-90 days, has shown signs of weakness as mortgage rates have climbed above 6.64% and now exceed 7.5%. Higher rates generally translate to a year-over-year decline in this data, especially as the year-over-year comparisons become more difficult. This trend was evident last week: purchase applications were down just 4% week-over-week but down 14% year-over-year.
Here are the statistics on purchase applications so far in 2026:
- 15 positive week-to-week readings
- 20 negative week-to-week readings
- 5 unchanged week-to-week readings
- 10 weeks of double-digit year-over-year growth
- 25 weeks of overall year-over-year growth
- 10 weeks of negative year-over-year readings
The Week Ahead: Iran, ISM PMI Data, and Fed Speeches
This week, developments regarding the Iran conflict will be in the spotlight, especially with the midterm election season upon us. If the situation doesn’t evolve over the next six weeks, there’s a chance it could extend into 2027.
We don’t have much in terms of economic data this week aside from the ISM and PMI figures, which have been robust lately and might sway the markets. Additionally, we can expect some Fed speeches, which have recently played a significant role.
