Mortgage spreads have supported mortgage rates below 6.64% for most of the conflict period. If the conflict ends and oil flows resume, one key risk variable is removed and spreads should remain low. Tariffs and the Iran-Israel conflict increased spreads only slightly, by about 0.19% to 0.25% basis points. With the 10-year yield near current levels, mortgage rates would have been much higher under worst spread conditions from 2023, 2024, and 2025. Spreads have been the biggest housing-market variable since mid-June 2025. A forecast expected mortgage rates between 5.75% and 6.75% and the 10-year yield between 3.80% and 4.60%, but rising inflation growth and improving labor data have shifted expectations toward a 2026 rate hike rather than cuts.
"Mortgage spreads are the hero of the housing market, as they have kept mortgage rates below 6.64% for most of the conflict. If the conflict is truly over and oil flows, one market risk variable is off the table and spreads should stay low. Both the Godzilla tariffs and the Iran-Israel conflict pushed spreads higher, but only by 0.19%-0.25% basis points. So, the conflict ending is a positive here as long as the Fed doesn't guide the market to multiple rate hikes ahead, we shouldn't see the spreads worsen like we have seen in previous years."
"Remember, with the 10-year yield at its current lovel: If we had the worst mortgage spread levels of 2023, mortgage rates would be 7.86% today, not 6.65%. If we had the worst levels of 2024, mortgage rates would be 7.48% today. If we had the worst levels of 2025, mortgage rates would be 7.29% today. Mind that spreads have been the biggest variable affecting the housing market since mid-June of 2025."
"My 2026 forecast range was for: Mortgage rates between 5.75% and 6.75% The 10-year yield fluctuating between 3.80% and 4.60% For the most part, this forecast channel has held even amid the conflict. But earlier this year, before the conflict even started, inflation growth was rising faster than people had hoped. Also, many at the Federal Reserve now believe that the labor data has improved and isn't getting worse."
"This is leading to more Fed members turning hawkish, as softer labor data had been their main reason to want to cut rates two or three more times this year. Now we have gone from two to three rate cuts in 2026 to a rate hike being priced in for 2026. The conflict ending can change this variable positively as long as the inflation growth rat"
#mortgage-spreads #mortgage-rates #10-year-treasury-yield #federal-reserve-policy #inflation-and-labor-data
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