T
he 30-year fixed-rate mortgage saw a significant surge after Moody's downgraded the US credit rating on May 16. This move, which marked the third major credit agency to lower the rating from Aaa to Aa1, sent shockwaves through the market. The average 30-year fixed-rate mortgage rate jumped to 7.04% by May 19, according to Mortgage News Daily.

    The Moody's announcement was a response to the estimated $4 trillion increase in the federal deficit over the next decade due to proposed tax cuts. This move was seen as a sign of weakening fiscal metrics, despite the US's significant economic and financial strengths. The rating agency stated that these factors no longer balance out the decline in fiscal metrics.

    The ripple effect of Moody's announcement was felt across the market. Treasury yields rose, pushing up 10-year and 30-year rates, which typically impact mortgage rates. This move also caused a drop in the stock market when it opened on May 19. The Federal Reserve has been cautious about interest rates amid recent tariff announcements and economic concerns.

    Atlanta Federal Reserve President Raphael Bostic expressed his concerns about inflation, stating that he is leaning towards just one rate cut in 2025. He cited rising expectations as a major concern, which would make the Fed's job more challenging.

    The latest mortgage rate jump comes at a difficult time for the housing market. Existing home sales stalled in April, with an annualized level of 4.196 million sales, down from April 2023 when rates were also around 7%. Pending sales declined in April, suggesting that May could be another slow month for completed sales.