Mortgage rates have surpassed 7% for the first time since 2023, following Moody’s recent decision to lower the U.S. credit rating from AAA to Aa1. This reduction, attributed to rising federal debt and political gridlock, has caused a sharp increase in Treasury yields, which in turn has driven up mortgage rates. The 30-year fixed mortgage rate reached 7.04% before settling at 6.99%, up from 6.81% the previous week.
This spike in borrowing costs is intensifying the ongoing housing affordability crisis. While home prices remain near record highs, many prospective buyers are deterred by the higher mortgage rates, limiting market demand. In response, some homebuilders have begun to cut prices on new homes, with 34% offering discounts in May, compared to 29% in April. This trend indicates that builders are taking action to counteract the effects of the rising rates.
The credit rating reduction has also triggered reactions in financial markets. The yield on 30-year U.S. Treasury bonds briefly exceeded 5%, the highest level since November 2023, signaling growing concerns about the country’s fiscal stability and the potential for further increases in borrowing costs.
Economists are cautioning that without significant fiscal reforms, the U.S. could face continued high interest rates, putting further strain on the housing market and the broader economy. For homebuyers and investors, it is crucial to monitor fiscal policies and market trends, as these factors will play a critical role in shaping the future of the housing market.
