Existing home sales outlook improves as mortgage rates stabilize

Mortgage spreads and the 10-year yield

Mortgage spreads have been very damaging to housing demand over the past few years, as they’ve kept rates more elevated than normal. However, 2026 will be the first year when spreads start the year close to normal and can be back in their normal range this year

This means mortgage rates have a better shot of staying lower for longer. This usually happens when the rate-cut cycle is well underway, which it has been since September 2024. As you can see below, the 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 were in 2023, rates would be over 7% today, not 6.07%.

In HousingWire’s 2026 forecast, the upper end of mortgage rates is 6.75%, meaning this is the first time in years I haven’t forecasted a 7-handle in the yearly range. For rates to return to the upper range of 6.50%-6.75%, the labor market would have to start outperforming, not underperforming. However, with better mortgage spreads, even if we head toward the upper end range of my 10-year yield forecast of 4.40%-4.60%, and because the White House ordered the sale of $200 billion of 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 stay at 6.25% or lower, we can see 237,000 more existing home sales than in 2025, which would be the first real year of growth in sales in many years. What happened last year is that sales started to rise when mortgage rates went below 6.64% toward 6%, which took 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 near 6% most of the year, sales growth is in the works.

Remember, we just had three years of the lowest existing home sales data ever when 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 move lower and stay there, we can grow sales from depressed levels. Even in the early 1980s, when affordability was worse, over time, with wage-growth rising, price-growth cooling and rates falling, we were not able to grow sales right away, but we did grow sales for years to come.

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 had no homes to buy during that period, which wasn’t true. Buyers and sellers can close transactions much faster now than in the past, and because of that, those homes are often never accounted for in the monthly inventory data. So, the fact that we are at 1,180,000 active listings shows we have plenty of supply to help home sales grow in 2026, but, more importantly, more choices and less price growth are positive for housing.

Conclusion

Keep things simple with housing data. Over the last few years, we have had a couple of hundred thousand more home sales when the 10-year and mortgage rates headed lower. However, every time in the past, rates would just shoot up over 7% and sales growth would fall, going back and forth with sales not going anywhere. However, in 2026, the backdrop for keeping rates near 6% is much better than it has been in recent years.