Housing market faces headwinds as mortgage rates move above 7%

Better mortgage spreads were a positive storyline in 2026, keeping mortgage rates under 7% all year until this last week. 2026 had the lowest rate curve in many years, but an escalation of the Iran conflict pushed the 10-year yield higher and closer to 5% last week. Mortgage rates, which were as low as 5.99% at one point this year, ended the week at 7.12%.As we’ve stressed over the past few years, housing data tends to improve when rates fall below 6.64% and move toward 6%, but demand tends to fade when rates rise above 6.64% and move above 7%. Now, we are also on the verge of a Fed rate-hike cycle, partly because this conflict has lasted so long. Mortgage spreads Last week, we saw mortgage spreads take their last stand to keep rates under 7%, like King Leonidas in the movie 300, giving a loud roar. The 10-year yield has been rising as the Iran conflict has worsened entering its sixth month, and when President Trump said the conflict might not end until after the midterms, yields almost closed at cycle highs. The one positive here is that things could have been a lot worse. This week shows the widest gap between where mortgage rates could have been — given where the 10-year yield i...