The outlook for existing home sales is improving as mortgage rates stabilize

Mortgage spreads and the 10-year interest rate

Mortgage spreads have been very damaging to housing demand in recent years as they have kept interest rates higher than normal. However, 2026 will be the first year where spreads start the year near normal and could be back within their normal range this year

This means that mortgage rates have a better chance of staying low for longer. This usually happens when the rate cut cycle is already in full swing, which has been the case since September 2024. As you can see below, 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 are in 2023, interest rates today would be over 7%, not 6.07%.

HousingWire’s 2026 forecast puts the top end of mortgage rates at 6.75%, meaning this is the first time in years I haven’t forecast a 7-hand in the annual range. For interest rates to return to the upper limit of 6.50%-6.75%, the labor market would have to perform better, and not underperform. But with better mortgage spreads, even as we head toward the upper end of my 10-year yield forecast of 4.40%-4.60%, and with the White House ordering the sale of $200 billion in mortgage-backed securities, this also adds another layer of protection for rates in 2026, which will boost demand.

Existing home sales

For 2026, as long as mortgage rates remain at 6.25% or lower, we could see 237,000 more existing home sales than in 2025, which would be the first real year of sales growth in many years. What happened last year is that sales started to increase when mortgage rates fell below 6.64% to 6%, pushing the monthly sales data from 3,930,000 in June to 4,350,000 in December – an increase of 420,000 in sales. So if rates can stay around 6% for most of the year, revenue growth is in the works.

Remember, we just had three years of the lowest existing home sales data ever adjusted for civilian labor force growth, so the bar to beat is very low here. However, history has shown that once mortgage rates make a meaningful decline and stay there, we can grow sales from low levels. Even in the early 1980s, as affordability worsened over time as wage growth rose, price growth cooled, and rates fell, we weren’t able to grow revenue right away, but we could grow it over the next few years.

Inventory is good enough for sales growth

One of the questions I heard a lot after COVID was: How did we get so many home sales when inventory was so low? I understand this because many people said we simply didn’t have any homes for sale during that time, which wasn’t true. Buyers and sellers can now close transactions much faster than before, which is why these homes are often never included in the monthly inventory data. So the fact that we have 1,180,000 active listings shows that we have enough supply to help grow home sales in 2026, but more importantly, more choices and less price growth are positive for housing.

Conclusion

Keep it simple with property details. In recent years we have sold a few hundred thousand more homes as ten-year and mortgage rates fell. However, in the past, rates shot up more than 7% each time and revenue growth fell, with revenue going back and forth and going nowhere. However, in 2026 the environment for keeping interest rates at a level of around 6% is much better than in recent years.