Mortgage Rates Climb Above 7% After Moody's Downgrades U.S. Credit

Moody's recent downgrade of the U.S. sovereign credit rating from Aaa to Aa1 has led to increased yields on 10-year Treasury bonds, directly causing mortgage rates to creep closer to or above 7%, marking a significant rise amid the spring homebuying season. This downgrade reflects concerns over the U.S. government's growing budget deficit and fiscal outlook, including anticipated increases in entitlement spending and flat government revenue, which Moody's expects will worsen the debt burden over the next decade. Higher Treasury yields and mortgage rates have pushed borrowing costs up, making homeownership less affordable and potentially pushing more consumers into the rental market, especially as home prices remain near record highs and affordable listings are scarce. While the stock market showed some initial volatility, analysts suggest the downgrade's market impact may be limited going forward; however, mortgage rates are expected to remain elevated for the foreseeable future. Experts recommend potential homebuyers lock in mortgage rates promptly due to daily fluctuations and rising borrowing costs, despite some recent minor easing in rates. The Federal Reserve remains cautious about interest rate cuts in 2025, citing inflation concerns that could complicate efforts to lower borrowing costs amid these fiscal challenges.