Why it will be hard to get mortgage rates over 7%

Can mortgage rates get to 7% or above this year, given the continued nature of the Iran conflict? While not part of my forecast in 2026, the Iranian conflict has changed a lot of things. However, even with all the drama this year, mortgage rates have still not reached 7%.

Today I’ll explain why we haven’t seen those levels and what would need to happen for that to occur. 

10-year yield and mortgage rates

In the 2026 HousingWire forecast, I anticipated the following ranges:

• Mortgage rates between 5.75% and 6.75%
• The 10-year yield fluctuating between 3.80% and 4.60%

My high-level forecast for the 10-year yield of 4.60% was incorrect this year. Even though we are at this level today, the only reason we are here is the Iran conflict, which, of course, was not part of my forecast.

After watching how the bond market has behaved this year — even with better economic data and rising inflation — it is likely we would never have touched 4.60% without the Iran conflict. This morning we hit 4.60% again after the U.S. renewed bombing Iran last night, mirroring the last time we were above 4.60% this year, when headlines about the Iranian conflict prompted bond traders to sell.  

While oil prices are up from the recent low of $68, they’re not even over $80 today, but the 10-year yield is close to yearly highs. I have explained how this has more to do with the Federal Reserve becoming hawkish. However, since a lot of the Fed members made the conflict with Iran a huge part of their hawkish stance, I can understand why some people thought mortgage rates might go much lower when oil was below $70.

I believe the Fed being more hawkish is the bigger story here, and the conflict heating up again has just made their stance firmer. As I wrote yesterday, the Fed has had ample chances to talk down their hawkish stance with oil prices lower, and they haven’t.

So, can rates get above 7%?

We should now think of the base mortgage rate levels as 6.50%-6.75%, and the 10-year yield base level should be 4.46%-4.48%. These levels assume a lot of hawkishness is already priced into the markets.

So what happens if the Iran conflict gets worse? I don’t believe the conflict will be the main variable in driving rates higher. To do that, the Fed needs to be hawkish and the economic data has to firm up, but even with that, I can only go 0.375%-0.437% higher on mortgage rates above the peak forecast of 6.75% because mortgage spreads have improved so much.

While there is a pathway to higher rates due to the conflict, a lot would need to happen to get rates above 7% and keep them there. Obviously, this conflict could last indefinitely, but, to me, the economic data and labor are more key now with the Fed’s more hawkish stance.

Conclusion

For mortgage rates to get above 7% this year we need a lot to happen. Also, the Federal Reserve needs to be okay with rates going above 7% and Fed Chairman Kevin Warsh has stated that policy is too restrictive for housing to grow. For now, if these conflict headlines and attacks can end and we can just focus on economic data, rates getting above 7% is unlikely. At the same time, rates getting back to 6% is also unlikely unless some Fed hawks turn dovish.