Mortgage rates jump above 7% after Moody's downgrade of U.S. credit
Moody's cut the U.S.'s sovereign credit rating from AAA to Aa1. It was the last of the major credit-rating firms to strip the country of its triple-A rating. S&P Global Ratings downgraded U.S. debt in the summer of 2011.
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From the archive (August 2011): U.S. triple-A debt rating cut by Standard & Poor's
The downgrade of debt put upward pressure on bond prices on Monday morning. That pushed the 30-year fixed-rate mortgage up 12 basis points to 7.04%, according to Mortgage News Daily. It later settled at 6.99% later in the day.
Moody's MCO cited an increase in government debt and interest-payment ratios that were significantly higher than similarly rated sovereigns as reasons for its decision.
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Mortgage rates tend to move in tandem with Treasury yields. With the 10-year yield TY00 going up, the 30-year fixed mortgage rate was going to trend upward as well, Jake Krimmel, a senior economist at Realtor.com, told MarketWatch.
(Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch publisher Dow Jones is also a subsidiary of News Corp.)
Mortgage rates going up is 'really not ideal for prospective buyers,' Krimmel added.
The housing market, meanwhile, is mired in a crisis of affordability. Elevated mortgage rates and record-high home prices have put homeownership out of reach for many Americans, as demonstrated in the chart below.
Home sales plummeted to a 30-year low in 2024. Even though the spring season is typically the busiest time of the year for the residential real-estate market, buying and selling have remained 'sluggish,' Lawrence Yun, chief economist at the National Association of Realtors, said of home sales through March.
Against this backdrop, 'the housing market really does not need another factor pushing mortgage rates up — or preventing them from coming down,' Krimmel said.
Economic uncertainty is also weighing on residential builders, who are responsible for a critical part of housing supply. In their most recent housing-market confidence reading, builders expressed a heightened level of pessimism. The reasons cited for the gloomy outlook include high interest rates, policy uncertainty and building-material costs.
The silver lining is that the housing market is becoming more buyer-friendly.
Price cuts are becoming more commonplace. More builders are slashing prices on new homes, with 34% cutting prices in May, which was up from 29% the previous month. The size of the average price cut was 5%.
More selling homeowners are offering concessions to buyers in some markets. About 25% of listings on Zillow ZG, a major real-estate platform, saw a price cut in April. That was the highest share for this busy time of year since the company began keeping track in 2018.
The median sale price of a U.S. home as of April, the most recent month for which complete data are available, was $438,500, according to data from the real-estate brokerage Redfin RDFN. That was up 1.4% from a year ago.
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Bond yields jump after Moody's downgrade of U.S. credit. Why it matters for consumers — and Congress.
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