Last week, as the Iran conflict pushed 10-year Treasury yields to 4.48% and mortgage rates hit 6.64%, something counterintuitive happened: housing demand still showed year-over-year growth. In a year already marked by AI labor disruption headlines, epic snowstorms, and geopolitical tensions, the U.S. housing market demonstrated remarkable resilience—but the data reveals cracks in the armor.

Context & Background The U.S. housing market has operated under a delicate equilibrium since 2022, where the 6.64% rate has served as a psychological dividing line. Every time rates fell below this threshold and headed toward 6%, demand consistently improved, as seen in late 2022 to early 2023, mid-2024, and mid-2025. The inverse pattern holds equally true: when mortgage rates climb above 6.64% and approach 7%, demand turns negative. Now, with the Iran conflict adding upward pressure to rates and the Federal Reserve monitoring inflation, the market faces its stiffest test since the pandemic.

“"6.64% isn't just a number—it's the inflection point where buyer psychology shifts from 'opportunity' to 'wait-and-see.'"”

Analysis & Impact The pending home sales data shows the last six weeks have registered positive yearly growth, with **70,209 transactions last week compared to 69,183 during the same period in 2025**. However, this yearly growth slowed last week, and week-to-week data dipped, suggesting momentum is fading. More concerning is the slowdown in mortgage purchase applications, a forward-looking indicator that leads home sales by 30-90 days. While 2026 has shown positive year-over-year growth every single week, weekly growth slowed from 12% to 5% last week, with a 5% week-to-week decline.

The spread between mortgage rates and Treasury yields offers the only relief in this landscape: if 2023-2025 spread levels persisted today, mortgage rates would easily exceed 7%. This compression has prevented a complete market collapse but cannot indefinitely offset the impact of rising Treasury yields. The 10-year Treasury yield closed the week at 4.44%, approaching the peak of HousingWire's 2026 forecast of 4.60%, driven by the Iran conflict and its implications for energy and input costs.

What to Watch The next critical test will come when mortgage rates consistently breach 6.64% and approach 7%. Historically, this level has marked the point where demand turns negative. Investors should monitor whether the market can maintain even modest growth in this territory, or if it finally succumbs to higher rate pressure. The Iran conflict represents the most unpredictable variable: if it extends beyond March, it could push Treasury yields beyond 4.60%, forcing the Fed to reconsider its monetary stance.

Equally important will be watching whether mortgage spreads can remain compressed. If these widen while Treasury yields rise, mortgage rates could spike above 7% rapidly, testing market resilience beyond any recent precedent. Buyers who have been waiting on the margins could be forced to withdraw entirely, while sellers might face more significant price adjustments than seen so far.