US mortgage rates could hit 7%, 8% or 9% as bond market volatility persists

Key facts

• Mortgage rates could reach 7%, 8%, or 9% depending on various economic and geopolitical factors.
• The 10-year Treasury yield and mortgage spreads are critical determinants of mortgage rate levels.
• Housing inventory growth has been subdued, with some weeks showing negative year-over-year changes.
• New listings are in a typical seasonal decline, but sellers may hold back from listing due to high rates.
• Price-cut percentages are increasing, with 42.83% of homes seeing reductions last week.
• Pending home sales data shows a week-to-week decline, reflecting the impact of rising rates.

The US housing market faces a potentially "scary" future as mortgage rates are projected to climb, with scenarios ranging from 7% to 9%. This outlook is driven by significant volatility in the bond market, influenced by geopolitical events such as the conflict with Iran and potential escalation of trade wars. The author's 2026 forecast anticipated mortgage rates between 5.75% and 6.75% and a 10-year yield between 3.80% and 4.60%.

For mortgage rates to settle at 7%, the conflict with Iran would need to end and Trade War 2.0 would need to not worsen, allowing the 10-year yield to decrease. The Federal Reserve's stance on higher rates also plays a role in this more likely outcome.

Reaching 8% mortgage rates would require the 10-year yield to approach 5.40% and mortgage spreads to widen significantly. This scenario would also necessitate strong economic data, a hawkish Federal Reserve, and a prolonged conflict. Last week's data showed that while yields rose, spreads did not widen enough, and the jobs report missed estimates.

A 9% mortgage rate scenario is considered less likely but would demand sustained high nominal growth (5%-8% quarterly), a robust labor market, no Fed pivots on rate hikes, and an extended conflict. If mortgage spreads were to widen to 3.47% from the current 2.04%, rates would already be at 9%.

Mortgage spreads are now a critical focus, with spreads rising to 2.04% last week from 1.98% the week prior, compared to historical ranges of 1.60% to 1.80%. If spreads had mirrored the worst levels of 2023, 2024, or 2025, current mortgage rates would be 8.64%, 8.26%, or 8.07% respectively, instead of the current 7.57%.

Housing inventory growth has been modest, with new listings in a seasonal decline. However, sellers might be hesitant to list homes due to high mortgage rates. Price-cut percentages are increasing, with 42.83% of homes seeing reductions last week, a trend expected to continue as rates rise.

Pending home sales and purchase applications show weakness, consistent with mortgage rates exceeding 6.64% and moving past 7%. The current period of rates above 7.50% will serve as a significant test for the housing market, as such levels have not been sustained in recent years.