A brief summary of the forecast for 2025
In 2025, my forecast was that the 10-year yield would range between 3.80% and 4.70%, and that mortgage rates would range between 5.75% and 7.25%. The actual numbers ended up being very close to that. The 10-year yield ranged between 3.87% and 4.79%, taking into account overnight transactions, and mortgage rates ranged between 6.13% and 7.26%.
The reason mortgage rates are near their year-end lows at the end of the year is that the labor market has weakened and mortgage spreads have returned to near-normal levels. Without these two variables, mortgage rates would have stayed higher for longer.
The forecast for 2026
My forecast for 2026 is for the 10-year yield to range between 3.80% and 4.60%, and for mortgage rates to range between 5.75% and 6.75%.
It is difficult for me to forecast mortgage rates below 5.75% with the Federal Reserve in a neutral political stance; If mortgage spreads were normal, we would be there today. As I’ve often mentioned, we’ve had a slow dance between the 10-year yield and the 30-year mortgage rate for decades and Federal Reserve policy actually moves between 65% and 75% of this.
If the bond market truly fears a recession (as it did in 2023 and 2024), then the 10-year yield can easily fall below 3.80%. Unlike those years, the 10-year yield did not drop below 3.80% in 2025, even with Godzilla tariffs and fears that they would usher in a recession.
What would push rates to the upper end of my 4.60% forecast range? If labor data improves. If we had created more than 100,000 jobs and the unemployment rate was lower, yields and rates would have been higher in 2025.
By 2026, thanks to Federal Reserve policy and better mortgage spreads, I can shave 0.50% off the top end of the expected range for mortgage rates in 2025. However, if the economy grows faster and jobs data improves, rates may rise from current levels.
Mortgage spreads
Mortgage spreads have been a confusing topic because many people simply don’t know what the term means. The spread is the difference between the 10-year yield and the 30-year mortgage rate. In 2023, that difference reached 3.10%, and the normal range in recent history has been between 1.60% and 1.80%. The forecast for 2024 and 2025 was for an improvement in spreads and as you can see in the chart below, we saw that improvement.
The forecast for spreads in 2025 was an improvement of 0.27%-0.41% based on an average of 2.54% in 2024, and we ended the year at 2.05%. Mortgage spreads should return to the 1.80% level in 2026, providing more protection to keep rates lower for longer.
Existing home sales
I always encourage people to follow our weekly Housing Market Tracker articles as they have done a good job of showing changes in housing history, including rate levels that impact the demand curve, both positive and negative. What I have seen and talked about for some time now is that housing data tends to improve when mortgage rates fall below 6.64% and are heading towards 6%.
Simply put, if mortgage rates can stay below 6.25%, we can get 237,000 additional existing home sales in 2026. The lower the rates, the more home sales we will have. Of course, this means that if rates rise above 6.64%, sales would fall slightly, as has happened in recent years.
House prices
In 2024, my house price forecast was for 2.33% growth, which turned out to be wrong, as lower rates drove up house prices that year, ending 2024 with 4% growth. I always use the S&P Cotality Case-Shiller Price Index as my price metric. In 2025, my forecast was for 1.77% growth in house prices and we will end there. I always care more about showing our weekly tracker data linked to a forecast, because most forecasts are never 100% correct, but what really matters is the flow of data throughout the year.
That said, both 2024 and 2025 forecasts pointed to a drop in real home prices, a pattern seen throughout history in affordability-constrained markets. Outside of the 2007-2011 period, since 1942, we have never had a year in which nominal prices have fallen by 1%. Prices in 1990 were down 0.7% and those in 1991 were down 0.2%. By 2026, I expect the inventory growth trend to continue, with stay rates elevated and home prices down 0.62%.
I don’t 100% agree that mortgage rates could drop significantly in 2026, and given the slope of our inventory data, if rates rise back toward the upper range, prices may become soft again.
Now, as mortgage rates approach 6%, pricing data improves, as we saw at the end of 2025. When they rise above 6.64%, they weaken. This is all very healthy and the best way to address affordability is through supply. Every year that passes with wages growing faster than home prices is a good year for America.
My rule of thumb has always been that when active inventory exceeds 1.52 million and we have more than 4 months of supply, there is no longer an inventory shortage; Both happened in 2025. As part of the weekend follow-up, we’ll look at how rates, inventory, new listings, and price reduction percentage work together in the new year.
The X factor: Trump’s real estate policy
Between proposals to replace Fed Chairman Jerome Powell and go after regional Fed governors, 50-year mortgages, portable mortgages, the Freddie and Fannie IPO, the national housing emergency plan, and a capital gains exemption of up to $1 million, the year 2026 has the potential for the most significant housing policy actions by a sitting president in recent history.
That said, I don’t take any policy proposals seriously in my economic work until I see a law or policy actually change; then I can deal with it. Additionally, I think that if Trump picks one of the people close to him as the next Fed chair and the bond market goes against him as a result, I think that person, whether it’s Kevin Warsh or Kevin Hassett, will resign, since Trump doesn’t have much time to deal with the bond market throwing a tantrum.
My best advice is to follow our weekend tracker and listen to the HousingWire Daily podcast to learn what’s really happening in housing, not what could happen. Speculating on political and economic outcomes is not useful until something happens.
Conclusion
We will know a lot about the 2026 housing market in the first few months of the year and our Housing Economic Summit on February 10 is a good time. Hopefully our new listings data will return to normal in 2026, hovering between 80,000 and 100,000 listings per week during peak seasonal months. We haven’t seen that happen in years. During the housing bubble, new homes for sale ranged from 250,000 to 400,000 per week. We still don’t see stressed sellers in the markets; If it ever happens, we will collect it first in this data line.
It will be interesting to see how inventory reacts if rates stay low longer into 2026. Demand improves a bit with rates near 6%, but that won’t cause prices to rise aggressively, given that active inventory has now risen from the lows we saw in early 2022.
If we raise rates, housing will slow and prices will be negative in some parts of the United States more than others. I’ll be curious to see how inventory grows in 2026. When mortgage rates headed toward 6% in 2025, our inventory growth rate data fell from 33% to 13.06% year over year. So it will be interesting to me in 2026 how home sellers react to rates near 6% at the start of the year.
As is always the case in my job, a forecast is useless without a tracking model every week or month to explain where things are headed, because if there’s one thing the last three years have shown, it’s that housing can change quickly and our data will be the first to detect it. It’s my job to show you how this all works and the weekly tracker will be available again on January 10th. Happy new year!
Logan Mohtashami is the keynote speaker at HousingWire’s Housing Economic Summit on February 10. Find more information here.
