Today, mortgage rates rose above 7% for the first time this year. The positive storyline for the 2026 housing market was that mortgage spreads near normal would reduce mortgage rate volatility and keep rates below 7% all year long, which would be the first time in several years that happened.
This is important because housing demand tends to get better when mortgage rates get below 6.64% and head toward 6%. However, demand fades when rates get above 6.64% and break above 7%. This has been fairly consistent for years and today we lost that critical 7% line.
Even with all the drama this year, and then the 10-year yield getting as high as 4.85%, rates had stayed under 7%. On July 8, I wrote an article stating why it would be hard to get rates over 7% this year.
“While there is a pathway to higher rates due to the conflict, a lot would need to happen to get rates above 7% and keep them there. Obviously, this conflict could last indefinitely, but to me, the economic data and labor are more key now with the Fed’s more hawkish stance.”Today, the 10-year yield is 4.92%. Both WTI and crude oil prices are above $100, and jobless claims and the unemployment rate are low. As valiantly as mortgage spreads have performed this year, they couldn’t keep rates below 7% under that kind of market pressure.
2 things happened today that pushed rates over 7%
1. Oil prices broke over $100 on WTI
For many weeks, I’ve highlighted that the oil chart, which had been in a downtrend for months, has recently reversed course and is heading higher. This is the most important story for rates in 2026, as oil prices and the 10-year yield are trading hand in hand more now than at any time in recent history. So naturally, as oil prices have headed higher, the 10-year yield has risen with it.
2. Jobless claims and the unemployment rate are still low
The Federal Reserve loves these two data points, and this is why Fed hawks are screaming for a rate hike. Without fear of the labor market breaking, they don’t need to worry about the other part of their dual mandate: maximum employment. They can focus more on price stability and getting inflation back to their 2% target level.
My number for jobless claims to break to where we can talk about a recession has been the same since I talked about it in 2022: 323,000 four-week average. If jobless claims were heading toward that direction and the unemployment rate was rising, the bond market — as it has done in the past — would send yields lower, but that’s not happening, which is a big reason why mortgage rates are at yearly highs.
As labor force growth slows, the unemployment rate can be lower than many think. To me, the Fed break-even rate is 33,000, and for some Fed members, it’s lower. So both the key labor data lines look good to the Fed.
Conclusion
Over the last few years, mortgage rates would have been much higher with the 10-year yield at today’s level. If we were dealing with the worst levels of mortgage spreads from 2023, mortgage rates would be over 8.10% today. If this was 2024, mortgage rates would be near 8% and even if this was 2025, mortgage rates would be above 7.50%.
So, mortgage spreads are still a big story in 2026 and will be for many years to come, but for today, they couldn’t keep rates under 7% as the 10-year yield is close to cycle highs at 4.92% and oil prices are over $100.