I just read through the latest reporting from HousingWire about where mortgage spreads are standing in 2026, and I wanted to walk you through what's happening because it matters to anyone buying or selling right now. Essentially, mortgage spreads, which is the gap between what lenders charge versus the underlying bond market, have improved this year and are actually keeping rates below 7 percent even though the broader 10-year yield would normally push rates much higher. This is genuinely helping the housing market stay afloat when otherwise we'd probably be seeing much weaker activity.
According to HousingWire, pending home sales are still showing slight year-over-year gains, though purchase applications have softened recently as rates climbed above 6.64 percent. What's interesting is that over the last three years, we've consistently seen the market slow when rates cross that 6.64 percent threshold and move toward 7 percent or higher. The difference this year is that improved spreads are keeping rates from climbing as dramatically as they would have in prior years, which is why we're not seeing the steeper sales declines we might normally expect.
Historically, mortgage spreads have typically ranged between 1.60 and 1.80 percent, HousingWire notes, but they're currently sitting at around 2.01 percent. This might sound high, but it's a huge improvement from 2023 when spreads spiked above 3 percent due to the banking crisis and Federal Reserve rate increases. Back then, rates would have easily hit 8 percent without those spreads being so wide. The fact that spreads have normalized toward those healthier levels is essentially what's keeping housing demand from cratering right now.
The publication points out that several factors are creating uncertainty in the rate environment. The conflict with Iran has been the primary driver pushing the 10-year yield higher lately, and Federal Reserve hawks are discussing potential rate hikes. Meanwhile, recent jobs data came in weaker than expected, though that didn't seem to calm the yield market much. HousingWire's reporting suggests that unless the geopolitical situation stabilizes and the Fed takes a less hawkish stance, we could see rates move higher, which would eventually put more pressure on sales activity.
On the inventory side, new listings have actually improved compared to recent years, with the market breaking above 80,000 new listings per week several times in 2026. According to HousingWire, we're back to the listing volumes we saw during 2013 through 2019, though we're on the lower end of that historical range. Price reductions remain relatively low compared to last year, though HousingWire expects that could change if rates continue climbing.
What I am seeing locally here in the Bay Area and Fremont is that this mortgage spread improvement is giving us a bit of breathing room. We're not facing the kind of demand collapse that higher rates alone might suggest, and sellers are seeing reasonable buyer traffic. However, I'm watching the economic indicators closely because if those spreads normalize further upward or if rates push past 7 percent, I expect to see the slowdown accelerate pretty quickly, particularly among first-time buyers who are rate sensitive. Right now, we're in a holding pattern, and that's actually better than what could have happened.
