Layla Zulfa
Last year, the housing market experienced a discernible shift around mid-June, a transition that would take an estimated six to nine months for widespread understanding. During that period, indicators pointed towards an impending increase in sales coupled with a slowdown in inventory growth. Crucially, at that juncture, there was a notable absence of any data suggesting an imminent housing price crash. This assessment was fundamentally rooted in the observed pattern that housing market data tends to improve when mortgage rates fall below the 6.64% threshold and move towards the 6% mark.
The current year presents a contrasting economic landscape. With mortgage rates elevated above last year’s figures, the housing data from this period is poised to generate significant year-over-year comparisons. Furthermore, the timing of the Labor Day holiday last year—August 30th to September 1st—significantly influences the current week’s tracker report, necessitating a careful consideration of its impact when compared against the 2025 Labor Day data.
Purchase Application Data Signals Buyer Hesitation
Forward-looking indicators, such as purchase application data which provides a 30-to-90-day outlook, have revealed a pattern of softness. This trend aligns with the sustained period of mortgage rates exceeding 6.64%. In the preceding year, when rates remained below this critical 6.64% level, purchase applications consistently demonstrated positive year-over-year growth. This upward momentum was further bolstered by a foundation of challenging year-over-year comparables from the beginning of that year. However, the current environment, with rates hovering near 7% and projected to remain in this vicinity for the remainder of 2026, presents formidable hurdles for achieving such growth.
Last week’s data indicated a modest week-over-week increase of 2% in the purchase applications index, resulting in a flat year-over-year comparison. While this performance is not entirely unfavorable given the prevailing higher rates and difficult comparables, the upcoming six weeks are anticipated to be more challenging. This period will likely test the resilience of buyer demand.
Historically, the Mortgage Bankers Association (MBA) weekly survey of mortgage applications provides a critical snapshot of consumer demand. In periods of declining rates and robust economic sentiment, this index typically shows consistent growth. Conversely, when rates rise and economic uncertainty prevails, a slowdown in applications is a predictable outcome. The current data reflects this latter scenario, suggesting a cautious approach from potential homebuyers.
Weekly Pending Sales Reflect Market Cooling
The weekly pending home sales data offers a more immediate, albeit volatile, perspective on market activity. This metric, which typically reflects transactions that are under contract but not yet closed, is subject to short-term fluctuations influenced by holidays and other transient factors. The data from pending sales generally materializes in the broader sales figures within a 30-to-60-day timeframe.
With mortgage rates having remained above the 6.64% mark for a sustained period, a discernible slowdown in pending sales has emerged. While the market has transitioned from a phase of growth to one of stagnation and now exhibits slightly negative year-over-year trends, the impact is becoming increasingly apparent.
The historical trend of pending home sales often correlates with broader economic conditions and interest rate movements. Periods of economic expansion and lower interest rates typically coincide with robust pending sales figures, indicating strong buyer confidence and a willingness to commit to new home purchases. Conversely, rising rates and economic uncertainty tend to dampen this activity, leading to a contraction in pending sales as buyers reassess their affordability and market timing. The current data points towards this latter scenario, suggesting a cooling of buyer enthusiasm.
Housing Inventory: A Tale of Shifting Comparables
This year, housing inventory has experienced a milder growth trajectory compared to previous recent years. This phenomenon can be attributed to two primary factors. Firstly, inventory levels are no longer starting from record-lows, making it more challenging to achieve significant year-over-year inventory growth as the market inches closer to a state of normalization where demand is not in sharp decline. Prior to mortgage rates surpassing 6.64%, existing home sales had shown positive year-to-date trends.
Secondly, mortgage rates have experienced their most favorable 12-month curve in recent years, notably avoiding sustained periods above 7% for the first time in a considerable while. However, with rates now exceeding the 6.64% threshold, a level historically associated with housing market deceleration, the influence of year-over-year comparables on inventory data becomes significantly pronounced.
Last year, as mortgage rates trended downwards and demand began to pick up, inventory growth moderated considerably compared to earlier in the year when rates were higher. This dynamic means that inventory data is now more likely to exhibit year-over-year growth for the remainder of the current year. The impact of the Labor Day holiday last year, occurring between August 30th and September 1st, explains a specific week-long dip in inventory compared to this year, where a similar dip is anticipated next week. Despite these seasonal and holiday influences, a consistent pattern of mild week-over-week inventory growth has been observed.
The National Association of Realtors (NAR) regularly reports on housing inventory levels. Historically, inventory fluctuations are closely watched by market participants. A sustained increase in inventory can signal a more balanced market for buyers, potentially leading to moderating price growth. Conversely, persistently low inventory, even with moderate demand, can contribute to upward price pressures. The current trend suggests a gradual normalization of inventory levels, though the pace of this normalization remains a key area of focus.
New Listings Maintain Healthy Post-2022 Levels
New listings are currently undergoing their traditional seasonal decline. While holiday data impacts year-over-year comparisons, 2026 has still recorded the healthiest level of new listings observed since 2022. For context, during peak periods, new listings typically range between 80,000 and 100,000 per week. It is important to distinguish this current activity from the housing bubble years, when weekly new listings consistently ranged from 250,000 to 400,000 for several years.
The robust level of new listings, even in a seasonally adjusted decline, suggests a continued willingness of homeowners to enter the market. This sustained activity is a positive sign, contributing to the overall supply picture and potentially mitigating extreme price appreciation driven by scarcity.
Price Cut Percentage Nearing Previous Year’s Levels
Typically, approximately one-third of homes experience price reductions before being sold, a common reflection of the dynamic nature of the housing market. This year, overall price-cut percentages have been lower than those observed last year. However, with mortgage rates having risen compared to the previous year, an expectation exists for the year-over-year decline in price cuts to compress, eventually aligning with or exceeding last year’s figures. The current week’s data indicates that the percentage of price cuts is very close to being on par with the previous year, a notable shift from earlier weeks.
In the 2026 housing price forecast, a national decline of 0.62% was projected for the year. However, current home price indexes indicate growth between 1% and 2%. This discrepancy suggests that achieving the initially forecasted decline may prove challenging. Nevertheless, with the recent uptick in mortgage rates, the original forecast might yet be realized.
The narrowing gap in price-cut percentages suggests a market where sellers are becoming more amenable to price adjustments, a sentiment that often intensifies as borrowing costs rise and buyer affordability is tested. This trend could be a precursor to more significant price moderation if sustained.
10-Year Yield and Mortgage Rates: Navigating Economic Crosscurrents
The 2026 HousingWire forecast had anticipated specific ranges for the 10-year Treasury yield and mortgage rates. This past week proved to be notably volatile for the 10-year yield. Despite a stronger-than-expected jobs report, consistently low jobless claims, and escalating geopolitical tensions that pushed West Texas Intermediate (WTI) oil prices above $93 per barrel, the 10-year yield and mortgage rates experienced relatively limited movement.
A significant portion of these economic factors appears to have already been priced into mortgage rates and the 10-year yield. For rates to climb substantially higher, particularly with efforts from Treasury Secretary Scott Bessent to support the long end of the bond market beginning next week, a more hawkish stance from the Federal Reserve, hotter inflation data, and a worsening of geopolitical conflicts would likely be necessary.
The upcoming week is characterized as "inflation week," with the Producer Price Index (PPI) scheduled for release on Thursday and the Consumer Price Index (CPI) report on Friday. The Federal Reserve is reportedly placing considerable weight on these reports. However, from a mortgage rate perspective, much of the anticipated impact has already been factored in. Consequently, a significantly hotter inflation report than current estimates would be required to meaningfully alter the market’s trajectory. The prevailing level of the 10-year yield will also play a crucial role in determining the extent of any movement. Therefore, market participants are bracing for another potentially volatile week.
Mortgage Spreads: A Buffer Against Higher Rates
Mortgage spreads have once again played a pivotal role in maintaining mortgage rates below the 7% threshold for another week. Even with the robust jobs data exceeding expectations, these spreads have acted as a buffer, preventing a significant surge in mortgage rates. In a recent discussion on the HousingWire Daily podcast, the potential factors that could widen these spreads were explored.
Historically, mortgage spreads have typically fluctuated between 1.60% and 1.80%. Last week, these spreads stood at 1.94%, a slight decrease from the 1.96% recorded the week prior. These spreads represent the difference between the yield on a mortgage-backed security and the yield on a comparable Treasury security, and they are influenced by various factors including market liquidity, investor demand for mortgage-backed securities, and perceived risk. Wider spreads generally translate to higher mortgage rates for consumers, all else being equal. The current elevated spreads, while helping to keep rates below 7%, also indicate a higher cost of borrowing for lenders.
The Week Ahead: Geopolitical Tensions and Inflation Data Take Center Stage
The upcoming week is poised to be dominated by two key narratives: ongoing developments related to the Iran conflict and critical inflation data releases. Reports concerning the Iran conflict emerged over the weekend, and their continued evolution by Tuesday morning will be closely monitored. Simultaneously, the week is designated as "inflation week," featuring the release of the PPI on Thursday and the highly anticipated CPI report on Friday. The Federal Reserve is expected to give significant consideration to this inflation data. However, as previously noted, a substantial portion of the potential market impact on mortgage rates has already been priced in. Therefore, a considerably hotter-than-expected inflation report would be necessary to significantly shift market expectations and influence mortgage rates. The prevailing trading level of the 10-year Treasury yield will also be a critical determinant of any market response. Consequently, market participants are advised to prepare for another week of potential market volatility.
