Analyst Sees Path Back to Sub-7% US Mortgage Rates

US mortgage rates may be able to fall back below 7%, according to HousingWire's weekly housing-market column. Its author says the 10-year Treasury yield has dropped under 5% and housing demand has steadied.

What moved rates

The column says October could have turned worse. A 10-year close above 5.35% would have set off bond selling and could have pushed mortgage rates above 8%. That did not happen. Mortgage rates are now closer to 7% than 8%.

Fed Chair Kevin Warsh said last week that tighter policy has caused financial pain for some AI companies. With AI firms facing debt-financing problems, the 10-year yield has gone lower, despite elevated oil prices and firm economic data.

The two paths

For rates to fall under 7%, the author sets out three conditions. The Iran conflict would end, which would put oil between $67 and $82. The trade war would not worsen. AI would slow. Rates stay above 7% if the AI story rebounds, the conflict continues and the trade war goes on.

Mortgage spreads, the gap between mortgage rates and the 10-year yield, are also a factor. They were 2.23% last week and remain near multi-year lows. Historically they have run from 1.60% to 1.80%. The author tests the current 10-year level against the worst spreads of recent years. With the worst spreads of 2023, rates would be 8.15% today rather than 7.27%. The worst levels of 2024 would give 7.77%, and those of 2025 would give 7.58%.

The housing data

Weekly pending home sales are higher than two weeks ago, which the column says shows demand has stabilized. Its rule of thumb is that demand tends to grow when rates are under 6.64% and heading toward 6%, and does not grow above 6.64%.

Purchase applications rose 4% week to week but remain down significantly year over year. Housing inventory is growing 6.78% year over year. It rose from 911,956 to 914,833 in the week of Oct. 23-30. A year earlier it fell from 862,924 to 856,751.

New listings are in their usual seasonal decline, and 2026 is the healthiest year for them since 2022, with more than 80,000 at a few points. In a normal peak period the weekly count runs between 80,000 and 100,000. One concern the author has is that sellers, who are mostly buyers too, may hold back at current rates. The data does not show that yet. Price cuts are up 1% year over year after rates passed 6.64% and then 7%. The latest Case-Shiller report showed 2.1% annual home-price growth, against the author's forecast of a 0.62% national decline for 2026.

Our View

The column is one analyst's reading, and it hinges on events that can change quickly. This week brings a jobs report, oil moves, AI news and the midterms. Watching whether the 10-year yield holds below 5% may show whether the case for sub-7% rates survives.

Source: HousingWire