Mortgage Rates Climb Above 7% Following U.S. Credit Downgrade

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After several weeks of stagnation, mortgage rates surged higher on Monday following Moody’s decision to downgrade the U.S. credit rating. Bond yields increased after the late Friday announcement, and mortgage rates are closely aligned with the yield on the 10-year Treasury. The average rate for the popular 30-year fixed loan reached 7.04% on Monday, marking the highest level since April 11.

“The average mortgage lender had to account not only for the market movement in Friday’s closing minutes, but also for the additional weakness observed this morning. This results in a significant day-over-day jump, but it does little to alter the larger trend,” stated Matthew Graham, chief operating officer.

The rise in mortgage rates in April had a direct impact on the housing market, causing a decline during the peak of the usually busy spring season. Pending sales of existing homes in April, calculated by signed contracts, decreased by 3.2% compared to April of last year.

Homebuilders also reported a steep decline in demand during April. Homebuilder sentiment is currently at its lowest level since the end of 2023, according to the National Association of Home Builders’ monthly index.

There was a slight recovery in mortgage demand from homebuyers during the first two weeks of May, as indicated by a weekly index, but that was when rates hovered around 6.9%. Recently, there has been a notable slowdown among buyers whenever rates exceed the 7% threshold. Any increase in rates could also disqualify some individuals from obtaining a mortgage.