Important data lines to follow
Despite being a slow month for the housing market, December can give us a good idea of what to expect in 2026. I will explain it with an example. In November 2022 we experienced the most important and fastest home sales never crash – so much so that I even said it looked like existing home sales were heading towards 4 million, when only recently they had dipped just below 5 million. As you can see in the graph below, the crash was epic and happened in just one year.
Then from November 9, 2022Mortgage rates began to fall towards 6%, fueling twelve weeks of positive forward-looking data. Those twelve weeks gave us one of the largest monthly sales prints in American history; In February 2023, almost 500,000 houses were purchased. So for the next four weeks, regardless of what the holidays do to the data, we have metrics we can track to give us an idea of what the start of 2026 will look like, as mortgage rates are currently near 6%. Below are the date lines you should focus on in the month of December.
Mortgage interest and the 10-year interest rate
In my forecast for 2025 I expected the following margins:
- Mortgage interest between 5.75% and 7.25%
- The 10-year interest rate fluctuates between 3.80% and 4.70%
Mortgage rates are near their lowest levels of the year as labor data has weakened and the Fed has been forced to reduce rates. As you can see in the chart below, the 10-year yield is near year-to-date lows; This time last year this was not the case. So as long as 10-year rates remain around 4% in December, we will have lower interest rates in 2026 than in 2024 and 2025.
One thing that could change mortgage rates is the upcoming Fed meeting in December. Fed Chairman Jerome Powell and the other Fed hawks tend to get very hawkish when mortgage rates approach 6%, fearing that more Americans will buy homes. At the last meeting, when the Fed cut rates, Powell sounded very hawkish, hoping that bond traders would push rates higher, and they did a little.
The market is pricing in another rate cut at the December meeting, so the key is to listen to what Powell says because mortgage rates could move higher in December if he is very aggressive. This will be his last meeting before Trump announces the next Fed chairman by Christmas. However, as long as the ten-year interest rate is around 4%, the mortgage interest rate will remain around 6%. Additionally, some ARM loans will fall below 6% in 2026, something that hasn’t been available to Americans in recent years.
Mortgage spreads
Mortgage spreads were the unsung superheroes of the housing sector this year, because without an improvement in mortgage rates we would not have had mortgage rates approaching 6%. The big difference with recent years is that spreads are noticeably better and are almost back to normal. As long as this remains true, it will be a plus for 2026. That’s why we’ll be tracking this date line every weekend.
Historically, mortgage spreads have fluctuated between 1.60% and 1.80%. If current spreads were as bad as they were at the 2023 high, mortgage rates would currently be 0.91% higher. Conversely, if spreads were to return to their normal range, mortgage rates would be 0.59% to 0.39% lower than current levels, meaning mortgage rates would be 5.63%-5.83%.
Mortgage purchase application details
Since late 2022, when mortgage rates fall below 6.64% and approach 6%, housing data appears to be improving, especially when it comes to positive weekly purchase data.
If we can achieve 12 to 14 weeks of positive weekly data, we will establish a solid trend. So far in 2025, we have recorded ten positive weekly data prints of purchase applications since mortgage rates fell below 6.64% in late July. Here’s what the data looks like since rates fell below that important threshold:
- 10 positive prints from week to week
- 7 negative prints from week to week
- 17 weeks of double-digit year-over-year growth
Here you will find the data for the entire year. While we have seen solid year-on-year growth in purchasing apps, the weekly data improved in terms of consistency as mortgage rates fell below 6.64%. For the month of December, we want to continue the positive trend of purchasing apps, as last week we reached an all-time high in purchasing apps this year.
- 22 positive measurements
- 18 negative measurements
- 6 flat prints
- 43 consecutive weeks of positive year-over-year data
- 30 consecutive weeks of double-digit growth, year after year
Our total ongoing sales data below is now more positive than in previous years. As long as mortgage rates remain near 6% and purchase application data grows week over week and year over year, we should see growth in 2026.
Home inventory
We no longer suffer from stock shortages as in the period 2020-2024 and we are close to normal stock levels. Home price growth is slowing and homebuyers will have more options in 2026. Sellers don’t have the same control they once had during the wildly unhealthy post-COVID housing market.
While we can expect the normal seasonal inventory drops, new promotions and price reductions, the positive story of higher inventory will continue throughout December. So this part of the story has already been written, as the graph below shows.
Conclusion
As we prepare for the last month of the year and the holidays, it is essential to monitor forward-looking housing data. You don’t want to be caught off guard, as many were in late 2022, when forward-looking housing data improved but few paid attention. It took about six months for people to realize that the market had changed, as Sarah and I discussed this podcast from 2023.
For the rest of the year, the 10-year yield and purchasing apps are key. If mortgage rates stay around 6% and buy apps grow week over week and year over year, that’s a good start for 2026 as buy apps continue to look 30 to 90 days and housing performs much better with rates around 6%.
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