Mortgage rates climb back above 7% after Moody’s U.S. debt downgrade

The recent downgrade of the U.S. credit rating by Moody’s has had a significant impact on the mortgage market, causing the average interest rate for a 30-year mortgage to jump back above 7%. This increase, the first time since April 11, has put the average rate at about 6.99%, according to Mortgage News Daily.

Despite the Federal Reserve’s efforts to lower interest rates last year, mortgage rates have remained high due to their correlation with the 10-year Treasury bond, which is sensitive to economic conditions. Following Moody’s downgrade, the markets experienced a dip in early trading, with the yield on the 10-year Treasury rising above 5%, the highest since late 2023. However, stock and bond prices managed to recover throughout the day.

Brian Rehling, head of global fixed income strategy at Wells Fargo Investment Institute, believes that investors have already factored in the nation’s debt issues and expects limited additional market impact from Moody’s downgrade. However, elevated mortgage rates are likely to persist, exacerbating the shortage of affordable properties for aspiring homebuyers.

Recent data from the National Association of Realtors shows that only about 1 in 5 listed homes in March were affordable for households with $75,000 in annual income, compared to about half of all listings before the pandemic. With home prices near record highs and borrowing costs on the rise, the affordability of homeownership continues to be a challenge for many Americans.

Nadia Evangelou, senior economist at NAR, notes that home buying activity typically increases when mortgage rates drop below 6.7%. As the housing market continues to face challenges with affordability and supply, it remains to be seen how the recent developments in the mortgage market will impact prospective homebuyers in the coming months.