Following the downgrade of U.S. debt by credit rating agency Moody’s, mortgage rates skyrocketed.
The United States’ sovereign credit rating was downgraded from Aa1 to Aaa by Moody’s. It was the final significant credit rating agency to deprive the nation of its triple-A rating. In the summer of 2011, S&P Global Ratings downgraded U.S. debt.
From the archive (August 2011): Standard & Poor’s downgraded the U.S. triple-A debt rating
Bond prices rose Monday morning as a result of the debt downgrade. According to Mortgage News Daily, that caused the 30-year fixed-rate mortgage to increase by 12 basis points to 7.04%.
In support of its conclusion, Moody’s (MCO) pointed to rising government debt and interest-payment ratios that were noticeably greater than those of similarly rated sovereigns.
Read more: The United States recently lost its perfect credit rating. The implications for markets of that.
Treasury yields and mortgage rates typically follow one other’s movements. According to Jake Krimmel, a senior economist at Realtor.com, the 30-year fixed mortgage rate was expected to rise in tandem with the 10-year yield (TY00), as reported by MarketWatch.
(Move Inc., a News Corp. subsidiary, runs Realtor.com, and News Corp. also owns MarketWatch publisher Dow Jones.)
“Really not ideal for prospective buyers,” Krimmel continued, is the rising mortgage rates.
Meanwhile, the housing market is enmeshed in an affordability problem. The figure below illustrates how many Americans are now unable to become homeowners due to high mortgage rates and record-high property prices.
In 2024, home sales fell to a 30-year low. Lawrence Yun, chief economist at the National Association of Realtors, described home sales through March as “sluggish,” despite the fact that the spring is usually the busiest period of year for the residential real estate market.
“The housing market really does not need another factor pushing mortgage rates up – or preventing them from coming down,” Krimmel stated in light of this.
Residential builders, who are in charge of a significant portion of the housing supply, are also feeling the effects of economic instability. Builders were particularly pessimistic in their latest reading on housing-market optimism. High loan rates, unclear policies, and the cost of building materials are some of the reasons given for the pessimistic outlook.
The good news is that the real estate market is starting to become more buyer-friendly.
Price reductions are becoming more widespread. More builders are lowering the cost of new homes; in May, 34% of builders did so, up from 29% the month before. The average price reduction was 5%.
In certain areas, more homeowners who are selling are making concessions to purchasers. In April, Zillow (ZG), a significant real estate website, reduced the price of almost 25% of its listings. Since the company started keeping track in 2018, that was the largest share for this hectic time of year.
According to data from the real-estate agency Redfin (RDFN), the median sale price of a property in the United States as of April, the most recent month for which full data are available, was $438,500. Compared to a year ago, that was up 1.4%.
