Mortgage rates experienced a sharp increase on Monday after Moody’s made the decision to downgrade the U.S. credit rating, ending weeks of relative stability.

The yield on bonds increased following the declaration on Friday, and mortgage rates typically move in tandem wiht the 10-year Treasury yield.

According to Mortgage News Daily, the average rate on a 30-year fixed-rate mortgage reached 7.04% on Monday, marking the highest point as April 11.

“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. That makes for a fairly big jump, day-over-day, but it does very little to change the bigger picture,” said Matthew Graham, chief operating officer at Mortgage news Daily.

The rise in mortgage rates during April had a clear impact on the housing market, causing a slowdown during what is usually a busy spring season. Realtor.com reports that pending sales of existing homes in April, based on signed contracts, fell by 3.2% compared to the same month last year.

Homebuilders also reported a significant decrease in demand during April. The National Association of Home Builders’ monthly index indicates that homebuilder sentiment is currently at its lowest level since the close of 2023.

Data from the Mortgage Bankers Association showed a slight recovery in mortgage demand from homebuyers in the first two weeks of May, but this occurred when rates were around 6.9%. A noticeable slowdown in buyer activity has been observed whenever rates exceed the 7% mark. Furthermore, any increase in rates will disqualify some individuals from obtaining a mortgage.

“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.”

Understanding Mortgage rates and Economic Impact