The outlook for existing home sales is improving as mortgage rates stabilize
Mortgage spreads and 10-year yields
The spread of subprime mortgages has severely hurt housing demand over the past few years, keeping prices higher than normal. However, 2026 will be the first year that spreads start the year close to normal and could return to their normal range this year.
This means that mortgage rates have a better shot at staying low for a long time. This usually happens when the rate cut cycle is well underway, which has been in place since September 2024. As you can see below, spreads are almost 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 were in 2023, rates would be over 7% today, not 6.07%.
In HousingWire’s forecast for 2026, the top end of mortgage rates is 6.75%, which means this is the first time in years I haven’t predicted a 7 handle in the annual range. For rates to return to the high range of 6.50%-6.75%, the labor market will have to start working very well, not well. However, with better mortgage spreads, even if we are looking at the upper range of the 10-year yield forecast of 4.40%-4.60%, and because the White House has ordered the sale of 200 billion dollars in mortgage-backed securities, this also adds another layer of price protection in 2026, which will increase demand.
Existing home sales
In 2026, as long as home prices stay at or below 6.25%, 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 was that sales started to rise when mortgage rates went from below 6.64% to 6%, which took the monthly sales data from 3,93,000 in June to 4,350,000 in December – an increase of 420,000 in sales. So, if rates can stay close to 6% for most of the year, sales growth is in the works.
Remember, we just had three years of the lowest home sales data ever adjusted for residential labor growth, so the bar to beat is pretty low here. However, history has shown that if mortgage rates make a meaningful move down and stay there, we can increase sales from depressed levels. Even in the early 1980s, when affordability was very bad, over time, with income growth, cooling price growth and falling rates, we could not increase sales immediately, but we have increased sales for many years.
Inventory is good enough for sales growth
One of the questions I heard the most after COVID was: how did we get so many home sales when the inventory is so low? I understand this because many people said that we didn’t have houses to buy at that time, which was not true. Buyers and sellers can close transactions more quickly now than ever before, and as a result, those homes are rarely counted in monthly inventory data. So, the fact that we are on the active list of 1,180,000 shows that we have a lot of supply to help housing sales grow in 2026, but, more importantly, more choice and less price growth is good for housing.
The conclusion
Keep things simple with real estate data. Over the last few years, we’ve had a few thousand home sales where the 10-year rate and mortgage rate went down. However, every time in the past, prices would rise above 7% and sales growth would slow down, going back and forth with sales going nowhere. However, in 2026, the base for keeping prices close to 6% is much better than it has been in recent years.
