Better Mortgage Spreads Sustain Home Sales Growth Amid Rising Rates Existing home sales in the U.S. continued to show positive year-over-year growth despite elevated mortgage rates, driven by improved mortgage spreads that have kept borrowing costs below the 6.75% peak forecast for 2026. Pending sales for the latest week totaled 71,173, compared to 66,967 a year earlier, while inventory levels have stabilized near healthier post-2020 levels. This resilience is attributed to mortgage spreads, which have narrowed to 2.01%—a significant improvement over the 3% spreads seen in 2023, a period marked by extreme rate volatility. The article highlights that mortgage rates have remained below 6.64% for much of 2026, a stark contrast to the over-7% rates that dominated 2023-2025. During those years, housing demand often softened as rates surged, but the current environment has allowed for sustained growth. For example, if mortgage spreads had remained at their 2023 peak levels, rates today would be 7.70%, not the current 6.60%. Similarly, 2024’s spread levels would have pushed rates to 7.32%, and 2025’s to 7.13%. The current 2.01% spread, however, has kept rates within a manageable range, enabling positive home sales growth. Historically, mortgage spreads have fluctuated between 1.60% and 1.80%, but the 2023 spike to over 3% was an anomaly since 1986. The article notes that as the Federal Reserve begins a rate-cutting cycle, spreads typically improve, which aligns with the 2026 forecast of a peak mortgage rate of 6.75%. This projection is based on the expectation that spreads will return to more normal levels, reducing the pressure on borrowers. The 10-year Treasury yield, currently at 4.49%, has remained stable despite mixed economic data.#federal_reserve #dallas_fed #lorie_logan #ten_year_treasury #home_sales
