Mortgage rates in the U.S. are breathing — but only because of a narrow cushion. The mortgage spread, the gap between MBS yields and the 10-year Treasury, is the single reason rates have stayed below 7% in 2026. With the 10-year yield hitting 4.44% last week, if spreads had been at their worst 2023 levels, mortgage rates would be 7.62%, not 6.44%. The market knows it: without this improvement, home buying would have stalled.

The Big Picture

Mortgage spreads have been the unsung hero of the housing market in 2026. After years of extreme volatility—spreads peaked above 2.50% in 2023—they have tightened significantly this year, closing last week at 1.93%, flat from the prior week. Historically, spreads range from 1.60% to 1.80%, so there is still room for improvement, but the current level is dramatically better than in the previous three years.

To put it in perspective: if we had the worst spread levels of 2023, the mortgage rate would be 7.62%; with 2024's worst, 7.24%; with 2025's worst, 7.05%. All well above the 7% threshold that the market considers critical for demand. The Federal Reserve, now under new Chair Kevin Warsh, faces an internal civil war between hawks and doves, while oil prices rise and the economy sends mixed signals.

“"If spreads hadn't improved, mortgage rates would be above 7%, and the housing market would have seized up."”