It’s Monday and the Iran conflict looks like it will hit its 10th day straight of renewed missile and drone attacks. Oil prices are up a smidge today and the question now is: how much higher can mortgage rates go with so much already priced into the markets? 

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%

When I do a yearly forecast range, it is created to encompass a lot of variables, including the 10-year yield, mortgage rates and spreads. I believe 65%-75% of the slow dance between the 10-year yield and mortgage rates is Fed policy.

Because mortgage spreads have improved, my forecast didn’t have rates above 6.75% for 2026. We entered the year with two or three rate cuts priced in, and the 10-year yield was acting in line with that premise. 

Then we started the conflict with Iran in February, which gave us a new variable. Now we have to look at what happens if the Iran conflict continues for many more months.

The 10-year yield and 30-year mortgage rate have mostly stayed in their range all year, but a prolonged conflict should change the calculus because the bond market doesn’t like this conflict. As I am writing this article today, the 10-year yield is at 4.60% after the news of the weekend and this morning, even though oil prices currently are roughly at $82, not even above $100.

Worst-case situation for now

Even if the conflict ended today, I believe the base pricing for the 10-year yield should be between 4.46%-4.48%. This accounts for the labor market improving, inflation above target and Fed rate hikes in play now versus cuts. Also, the base level for mortgage rates should be between 6.50%-6.75%. This range has stuck during all the drama we have had to deal with.

Now, for the good news: mortgage spreads are much better now than in previous years. If we were in 2023, 2024 or 2025 with the 10-year yield at this level, mortgage rates would already be above 7%, and (in 2023) closer to 8% today. This is the main reason I believe it has been hard to get mortgage rates over 7%.

My peak mortgage rate forecast of 6.75% is now at risk with the conflict in its 2.0 phase, a stable labor market and Fed hawks talking a lot about rate hikes. However, assuming the Fed gets more hawkish and economic data outperforms, I can still only go 0.375%-0.4375% higher from my peak forecast of 6.75%, because so much is already priced into bonds and mortgage rates already. Getting over 6.75% even in this environment would require more variables to stay constant or grow, so on the high end rates still shouldn’t go over 7.25%.

Conclusion

I know some people were very hopeful that as oil prices headed lower, below $70, mortgage rates would go much lower, but they never broke under 6.50%. However, a lot has to go negative for rates to go higher than 6.75%. Even with that, I believe the upside is somewhat limited, unless the Fed really gets more hawkish than anyone else believes today, which would mean more than three rate hikes and the job market kickinging into another gear, with wage growth heading over 4%.

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