Hug a Mortgage Spread! The GSHMR for August, 2026

Welcome to the latest edition of the Greater Seattle Housing Market Review. As always, to skip right to the videos, you can do so by clicking here for the single family stats, and here for condos. For more detailed information, continue reading below!

What is a mortgage spread? A mortgage spread refers to the gap between the 10 year treasury bond/note and the 30 year mortgage rate. Mortgage rates follow the 10 year treasury, NOT the Fed funds rate, so If you ever want to look at where mortgage rates are going, just look at the 10 year treasury. Naturally, banks can't pass on a mortgage rate equivalent to the 10 year treasury. They demand a higher return so the 30 year mortgage they offer consumers will always be higher than the actual 10 year note. That difference, the margin between the raw 10 year treasury and the final 30 year product offered to consumers, is what's referred to as the "spread". See below the graph charting all 3 starting in 2018. 

Below is a chart specifically looking at the spread.

From 2018-2021 the average spread was 1.79. In other words, if the 10 year treasury was sitting at 3%, based on the average spread between 2018-2021 mortgage rates would have been 4.79%. Notice the sharp incline in the spread starting in early 2022. 

As of this moment the spread is sitting around 2%, which is still about .25% above historical averages, though WELL BELOW where we've been in past years. For parts of 2022 and most of 2023 that spread was above 3%, meaning if we had a 3% spread with today's 10 year note sitting at around 4.80%, 30 year mortgage rates would be roughly 7.80%!!! Instead, we're a full point lower, which isn't worth a parade, but good god things could be way worse!! 

Why were spreads so high a few years ago? Uncertainty. Markets, investors, traders, etc nobody likes uncertainty, and in uncertain times, uncertainty is going to be priced into everything at a premium to protect against volatility. When monetary policy was so uncertain in 2022-23, traders were less confident about the direction of long term rates so they demanded higher premiums on their offerings, thus higher spreads, and as a direct result, higher mortgage rates. However, now that we're 4+ years out of the QE (quantitative easing) policies, traders are getting more comfortable with the outlook of longer term rates, thus the easing of the spread signifying less uncertainty. 

With all this talk about the spread, let's not forget the real driver of mortgage rates; FED monetary policy and inflation. The FED has the dual mandate of optimizing conditions for maximum employment while doing their best to minimize inflation. Not an easy task. And currently they're in a tough position given the most recent jobs report blew away expectations and the unemployment rate is sitting at just 4.1%. It's hard to make a case for the FED to cut rates if employment is still essentially optimized. Additionally, while inflation is higher than the 2% goal, it isn't approaching any real concerning levels, yet lowering rates would only likely push inflation higher, so again their hands are tied. Don't forget that in the FED's August meeting from Jackson Hole, 3 chairmen voted for a rate increase! Not even all voting members of the FED are in alignment with their own policy!

If wishing for lower mortgage rates (join the club), there are two significant factors that can push mortgage rates lower; the end to the Iran conflict and a break in the labor market. The former would pick up global economies and push the 10 year bond lower. If unemployment numbers really pick up, that could lower rates, which is good for the people shopping for mortgages, but not so great for the many who would have lost their job in the process. The labor market has sent strong signals for a while that it's really neither growing nor shrinking. It's a no hire, no fire kind of moment where employees seem like they're largely just staying put after a few years of post pandemic mobility and leverage. 

Just look at how boring the unemployment rate has been post pandemic. Not a whole lot to see there and even when the Iranian conflict ends, which will help bring rates lower, getting from a weakening labor market seems like wishful thinking.

Onto the stats: 

Seattle - The median sale price registered $920,000. That is down 8% YoY and down significantly MoM from $999,500. Inventory is up 27.2% YoY and the months of inventory grew from 3.08 to 3.41.

Eastside - The median sale price registered $1,445,721. That is down 6% YoY and down significantly MoM from $1,575.000. Inventory remains significantly elevated at 32.8% more listings compared to August of last year while the months of inventory increased to 4.24 months from 3.94.

King County - The median sale price registered $920,000, which is down 7% YoY and down significantly from $995,000 MoM. Inventory remains elevated at 32.8% more homes on the market, while the months of inventory rose to 3.61 months from 3.34.

Buyers, your window of maximum opportunity is closing! Once we get into November, inventory will drastically decline and come the beginning of the year competition will return. Get after it!

Onward!