Mortgage Rates Cross 7% Again After U.S. Credit Downgrade

Mortgage rates climbed sharply on Monday, crossing back over the 7% mark following Moody’s downgrade of the U.S. credit rating late last week. The move triggered a rise in bond yields, which mortgage rates generally follow.

The average rate for a 30-year fixed mortgage hit 7.04%, the highest level since April 11, according to data from Mortgage News Daily. The sudden increase marks a reversal after weeks of relative stability.

“The average mortgage lender had to account not only for the market movement in Friday’s closing minutes, but also to the additional weakness seen this morning,” said Matthew Graham, chief operating officer at Mortgage News Daily. “That makes for a fairly big jump, day-over-day, but it does very little to change the bigger picture.”

The increase in mortgage rates is already having a visible impact on the housing market. Pending home sales in April, measured by signed contracts, fell 3.2% compared to the same month last year, according to Realtor.com. The decline came during what is typically one of the busiest seasons for home buying.

Homebuilder confidence has also dropped. The National Association of Home Builders reported that builder sentiment is now at its lowest level since late 2023, citing weaker buyer demand and affordability concerns.

Earlier this month, there had been a slight increase in mortgage applications from homebuyers when rates hovered just under 7%. However, data from the Mortgage Bankers Association indicates that buyers tend to pull back quickly when rates exceed that threshold. Higher rates not only reduce affordability but also disqualify some buyers from obtaining a mortgage altogether.

The current rate jump adds new pressure to a housing market already grappling with low inventory, elevated prices, and cautious consumer sentiment. With uncertainty surrounding economic policy and inflation trends, analysts say mortgage rates could remain volatile in the months ahead.