Mortgage spreads still the hero
The improvement in mortgage spreads has been the most critical factor in interest rates moving toward multi-year lows. We have experienced a few times where the ten-year interest rate was below 4%, but the interest rate was not below 6%. If this were 2023, with the worst mortgage rate differentials, mortgage rates would still be above 7%, and the housing market is struggling to get a handle on interest rates above 7%.
One of the questions I’ve been getting lately is: why are mortgage spreads rising lately? Well, the spreads are meant to reduce volatility at this stage, so the fact that the 10-year yield has fallen recently and spreads are above their annual lows is quite normal. Over time, spreads may improve further, but the best levels I’ve ever seen are between 1.60% and 1.80%. This is why I see mortgage rates bottoming out at 5.75% in the HousingWire Forecast for 2026.
10 year return below 4%
For me personally, it is of course always about the slow dance between the 10-year interest rate and the 30-year mortgage interest rate. Spreads can make that slow dance closer together or wider, but what really drives yields is the bond market, as it has for decades. The 10-year yield below 4% has caught some people off guard lately, especially today with interest rates hot inflation printbut it is still within the range for 2026, as the labor market is not breaking but not growing on a large scale either.
Conclusion
It’s Friday and we’re getting ready to start the weekend. For the first time in years, mortgage rates are below 6%, inventories are up, spreads are almost back to normal and prices are not rising out of control. It is a good place in the housing market compared to recent years. Take this win and enjoy the weekend, and go buy and sell some houses.
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