Moody’s Shocker Sends Mortgage Rates Soaring: What It Means for Buyers Now

Mortgage rates are back above 7%—and Moody’s U.S. credit downgrade is the culprit. In this week’s Mortgage, Markets, and More, Peter DeAngelo breaks down why rates jumped, how bond yields are reacting, and what this means for buyers navigating today’s volatile market. 📉📈

We also zoom into the New Jersey housing market, where inventory is climbing and prices are still rising. Learn why this rare window of buyer opportunity may close fast and what Fed policy could mean for affordability moving forward.

#MortgageRates #BondMarket #MoodySDowngrade #RealEstateTrends #HousingAffordability #FedWatch #InterestRates #NewJerseyRealEstate #FirstTimeHomebuyerTips #MortgageNews

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Peter D'Angelo | NMLS: 885309 | Branch Manager | Guaranteed Rate, Inc., NMLS 2611
Peter.DAngelo@Rate.com

*All information, topics, discussion is my own personal opinion and insight, not reflective of Guaranteed Rate, Inc. May contain market information for informational purposes only, not to be used as financial advice.

Transcript

Podcast_05.23.2025-Update

 [00:00:00] welcome back to mortgage markets and more. Peter DeAngelo here, branch manager for Rate here in Toto in New Jersey. I hope you're doing well. Gotta be doing a lot better than mortgage rates right now. I could tell you that much. Unfortunately, interest rates have gone up quite a bit here over the past week.

Let's try and understand why. Let's get a look at what things are looking like today. So as is customary, these are the mortgage rates as reported on mortgage News Daily. As of recording this podcast the Thursday morning before its release, starting off with the average 30 year fixed rate mortgage, we are now above 7%, and that is at 7.08% on average, 15 year fixed rates at 6.39%, 30 year jumbos, 7.13%, 30 year FHA.

Is at 6.52% and the seven six [00:01:00] SOFR adjustable rate mortgage is averaging 6.49%. Overall mortgages surged upward. This is our first time reporting over 7% since the beginning of the year. Looking at the bond market kind of shows you this is the environment, this is how this. Is looking for rates. The 10 year treasury yield is at 4.601.

As of recording this, the five year treasury yield is at 4.148, and the two year yield is at 4.009. As you can tell from the bond market, those have all gone up at the core of this. Why interest rates have moved so tremendously over the past two weeks is a compounding effect. Because of the tariffs. We talked about that last, but most important this past week was Moody's, which is a credit rating agency, uh, downgraded the US to a double A one, the top tier [00:02:00] that you can be from Moody's.

And I think it's, it's good to understand what Moody's is. So let's go back in history a little bit. Moody's is a company that. Essentially creates credit standards to rate companies, countries, economies, things like that. So you think of it this way, right? We've got our credit scores from credit bureaus like Experian, TransUnion, and Equifax.

Well, Moody's is like a TransUnion, Experian, or Equifax. But instead of giving a credit score to an individual, it's rating the credit quality. A company or country, and in this case there's others. Moody's is not the only one. There's also standard in pos s and P, if that sounds familiar, s and p 500 making the connection for you.

But we're talking about Moody's, and Moody's took the US. From aaa, which is the top tier, that's like if you had an over 800 credit score. It took us [00:03:00] down to AA one. It's not bad. We're still in the high seven hundreds here comparing it to being an individual person, but that's not a good look and the reason why that's such a concern and the reason why that has created higher interest rates for us.

Very simply is the fact that the US is issuing its debt for people to invest in the debt that the US issues is what we just went over the US bonds. So if the US is issuing that debt and trying to collect money from people who would invest in our country's debt so that our government can be funded accordingly.

Well, the rating for the bonds the US is putting out not quite AAA anymore. The US is now AA one. It's just a little step above the top tier. But this is a country, this is a, you know, this is our government debt that we're talking about and what that winds up creating this concern in international investors and [00:04:00] investors in general.

So if there's not as many people going to buy the US debt. To buy US bonds. Well then there's less competition to buy those bonds. There's less competition to buy those bonds. You can get those bonds for less money. That sounds good if you're the buyer, right? But if you're the seller like the US government, you're not getting as much money now.

Than you would have otherwise. And that gets reflected in those yields. So when we see, like today we talked about the 10 year treasury yield, 4.6%, we'll just round it there, 4.6%. That means if you're investing in a bond that's got a 10 year maturity, so in 10 years you can redeem full maturity in all of the money that you've made.

With that bond? Well, the fixed value at the end of that term is generating for you 4.6%, so that means the US government is paying 4.6% for the debt that they will have to wind up repaying 10 years from now. [00:05:00] Because of this function where the government has to repay back the debt, the government gets this credit rating because.

Investors need to have confidence that there's a high credit quality in what they are investing in to ensure that they're going to get their return later. Now, this little dip doesn't mean that there's a big concern about the US debt, but it's showing that there is starting to be concern, and the reason for Moody's downgrade was really pointed to high interest cost.

Remember we just talked about this for the bond market, so there's a higher interest cost, higher borrowing cost for the US government with the debt that they're issuing and the amount of debt. In general that the US has. So with both of those things is the key components. Moody's downgraded, the market reaction after that was pulling out and pulling away from US Treasury bonds, which makes the yields go up.

When those yields go up, interest rates go up. It's a very [00:06:00] simple ecosystem, a simple way of presenting that ecosystem. There's quite a bit more going on, but from a high level, that's the mechanics. That's how that works, and that doesn't create. Confidence through the US consumer. And that also presents issues for the Federal Reserve.

So the Federal Reserve takes a hit when something like this happens because the party involved in the monetary policy for our co, for our country, it's the Federal Reserve. And having a downgrade like this will certainly impact the psychology of the Fed Board members and their decision making. As we're all looking to the Fed to see when is going to be the appropriate time for loosening of their monetary policy to lower interest rates and create a little bit more affordability, particularly in the real estate market, is what we're talking about here, and I'm gonna get into more of that.

Later. Um, so that was the big market mover. Other than that happening, that was [00:07:00] a headline. That wasn't data. You know, last week we talked about the consumer price index. We talked about inflation reports. That's data. That's a regularly scheduled thing. This is something that just popped and created this so.

I mention all the time that there are things that influence mortgage rates that are far beyond the scope of what we can hope to anticipate. And this is a perfect example of something like that, something that's a headline that changes the narrative, that changes expectation and that changes interest rates.

And now we are now sitting very close to the, to the top, the higher end of our 52 week range for 30 year fixed rate mortgages. I know it's just a little bit above 7%, but also it's important to understand that these are averages and with the averages, that means they go in both directions to arrive there.

Higher cost markets in the country have higher interest rates, and it's just they're high cost areas. They are designated as high [00:08:00] cost areas. The New York Metro area, Boston, Chicago, San Francisco, any of the big metro areas. We'll just have higher interest rates that bleeds through into New Jersey here, um, into New York State, Connecticut.

That whole metro area has higher cost financing. So even though we're seeing this average across the country for mortgage news daily at 7.08%, well, I mean, you could very reasonably be applying for financing in New York or New Jersey or somewhere like that, and the averages could be higher. Could be somewhere closer to 7.2% that that much of a margin.

So it's important to keep that in mind too, to contextualize the averages that we present every week and we report out. Taking a pause, I wanna just take a, a cleansing breath from market and interest rates and just take a moment to look at what's new here in New Jersey. And a quick New Jersey spotlight for real estate market developments.

Uh, and before we drill down into that, we're gonna start high level with the national so that we can see how we're [00:09:00] stacking up when we compare what's going on nationally right now. So overall inventory nationally is up around 11 point. Oh, 2% year over year, uh, with a total inventory being up closer to 30% year over year.

Next week we're going to have existing home sales data for April. So I'm excited to see what kind of trend developed, uh, go looking at month over month. Because if you, we, if you recall, March was a little wonky because of interest rates, tariffs, and, and what was going on in April. Actually is the month that housed the liberation day when, uh, president Trump announced the tariffs.

So there was a lot of market reactions. So seeing what actually happened in April, I think is going to be extremely helpful for us to understand what the summer market could look like, or at least the beginning of the summer market. The buyer activity though, even though we saw the in increase in inventory, the buyer activity dropped.

So maybe, uh, because pending home sales sell fell around [00:10:00] 3.2%. Maybe the inventory going up isn't necessarily, uh, an indication of just increased inventory, but could also be giving us a, a higher reading because of the fact that there were less pending home sales. When we also look at the affordability, they, national Association of Realtors put together to a little formula to explain the affordability now compared to pre pandemic and.

For this case study one in five. Remember thinking about this one in five homes were affordable to households earning $75,000 a year annually, and this is looking across the whole country. When we compare that to the pre pandemic level one in two. So prior it was one in two homes were affordable. Two homes bringing in [00:11:00] $75,000 a year.

This is the, the affordability issue that we have right now. And until there's some relief for interest rates and or a softening on real estate values, which is happening across the country, it's not happening in the Northeast and in New Jersey, that's for sure. But this squeeze is now reaching a point.

Because the environment's perpetuated for so long that I think we're going to have to see what starts developing now. Like this should be analyzed as a new environment. I. Because of this attrition that's happened with buyer fatigue and interest rates swinging up and down, and now we're swinging up again.

We have to see how this plays out. So I don't really think that it's going to be very valuable. Looking back a year ago to understand what's going on now, we really have to assess everything right here, right now with the way that the market and the environment currently is. Uh, [00:12:00] now let's spotlight New Jersey.

Looking at New Jersey, the, the 30 year fixed rate mortgage does average, so I was able to find at least a range for everybody. But in March, and I'm gonna go back to March 'cause we're gonna look at April next week. 30 year fixed was averaging 6.8 to 7.13, even though we never NA, had a national average for mortgage news daily, above 7% in March.

This is the range here in New Jersey. The median single family home sale price, it's $560,000. That's 7.8% up year over year. Quite again. We've had 10% cumulative annual growth for about three years here in New Jersey, so this is kind of in line with that right now, if not a little bit softer, which is actually good news.

And the median condo price is $410,000, and that's up 4.5% year over year. Active listings, and this is going back to March, a little over 13,000. Um, when we take a look at days on market, they're still in a range of [00:13:00] 33 to 44 and in different counties, in different markets. That does vary. Longer days on market shows, the first signs of some softening just means that homes aren't being solved.

Boom. After one weekend of having an open house. And I'm even seeing that in North Jersey, there are homes that are going out for open houses two weekends in a row. So I'm just showing that there's the buyer pool could be sitting on the sidelines with consideration of everything that's been going on lately.

The buyer behavior right now is, it's all or nothing from the way that I'm seeing it. It's checking the temperature to get affairs in order to be prepared to purchase a home. And okay, we saw now we're gonna just wait. We're gonna see how things play out here. Uh, I want to have another year under my belt at my job because I have a promotion coming, or I want to maybe generate some more savings to have a little bit more of a cushion after we buy a home.

I. All of these things are [00:14:00] valuable, uh, insights when you get pre-approved, so you can get pre-approved at any point. You don't need to be purchasing a home tomorrow. You can even say, well, I know that for me I wanna buy a home a year from now, or with my family. I wanna buy a home from year, a year from now.

You can go through that process so that you can know. One, get a educated on the process. Get educated on the best practices to prepare yourself, and it'll just create for you opportunities to manage to the best possible scenario when you are ready to go. Yes. So first bucket, people who are just getting a temperature check.

Second bucket, people are out there very aggressive. Very aggressive looking to buy, and I can tell you now they are successful. So the people who are out there and committed to the process, going out to see homes, working with excellent local real estate partners and realtors so that they know the market inside and out and have good insight on that, we prepare the numbers.

Success is very possible, [00:15:00] and I'm noticing there's a. A trend in that direction, which is great. The third bucket, uh, it's still, I would say the third bucket now is thinned out. There was a time where you had more buyers that were in and out and casually looking. I can say pretty confidently now that it's one bucket one or bucket two, you're either in group A where you are getting your affairs in order to purchase at some point in the future, and then you're saying, okay, I'm gonna keep this information.

I'll let you know when I'm ready to move forward. Or group B, where you are just getting pre-approved, fully committed to the process, motivated and ready to buy. It's possible and it's navigable. So people are doing that. That third group, group C. Not many people in that, in that group anymore. It, I've, I've noticed that there's not so much in the middle and on the fence.

That being said, the middle and the fence is very much comprised of current homeowners who [00:16:00] really do need to move and sell. But maybe there, maybe it's fear because of what's going on in the economy right now. Maybe it's fear for personal reasons, whatever it may be. What I'm here to do is. Provide information and insight so that you can make the best decision possible.

This is what I do with my clients and, and all of the families that I help. My role is to help educate, make sure that you're being provided the best possible information and when requested, I can give guidance. But for me to do that, I really need to know. What the goals are and what's most important to you.

And so if I have any homework for anyone today, if home ownership is part of the plan, I would get super clear. I. I would recommend, 'cause it's just going to help. I would get super clear on what your monthly budget is, how much you're willing to part with by way of money that's in the bank for down payment and closing costs.

And the clearer you can get on that and the clearer you can [00:17:00] communicate that to someone like myself, a mortgage advisor and professional, the higher likelihood of success and the smoother experience you're going to have. So there's just something for consideration for you. Now I'm gonna go back to the interest rates.

I gave it some time a little pallet cleanser talking about real estate. I just wanted to point out something, 'cause last week with the consumer price index, I thought it was very interesting when I was analyzing that data, uh, and, and knowing how much of the shelter component is keeping. Inflation high and the shelter component is directly related to the higher cost of financing.

So I did some analysis, and I mentioned it last week. Now I feel squarely confident in this perspective. I'm going to share, and this is my opinion for what it's worth, looking at everything, we are really going to be in this gridlock. [00:18:00] Until we see lower interest rates, I do not believe that there's enough that's going to be moving in the right direction in the economy to lower prices for everybody to accommodate still the higher prices of, of the higher cost rather of financing.

And so with that being said. I see a likely future, whether it's the near future or even could be a year from now. I see a future where this will be a reality that needs to be contended with, and I think that's something that the fed's going to have to come to grips with. This inflation picture isn't going to improve until the shelter component.

Can get reduced until there's some improvement there. Now, this is where it gets tricky. If the Fed lowers their interest rates and we see cost to financing go down, the affordability is better, but what that's going to do if there's still super low [00:19:00] inventory, is this just going to embolden the buyer with being able to pay more.

If they're paying more, that's inflation. So it's a very complex thing. So as much as I'm saying this very clearly and directly, I'm like they need to lower interest rates for us to see progress on inflation eventually. And it may mean that we have to suffer through seeing a pop in inflation first, and then we can see the improvement.

But with the way things they don't, the way that things are shaping up, at least I don't know that that's a risk tolerance that the Fed has. Put that on the heels of Moody's downgrading US credit rating. I think they're gonna be a little bit more conservative here and they're going to need to see that.

So I just wanted to let everybody know today that I really do think that with inflation being as sticky and persistent as it's been, it is going to be a very difficult thing for the Fed to manage Now. At this point, we rewind six months ago, different [00:20:00] conversation. There was different environment, different things were happening.

Right now, though it's getting more difficult for them to be able to navigate this soft landing. Soft landing means that the Fed has successfully navigated lower inflation while not sending the economy into a recession. The likelihood of that now is getting m far less. There was a time about a year ago where we really saw good progress and we thought, man, we're we, we could, the Fed may be able to pull this one off.

That's kind of going in the wrong direction now, and I don't wanna present this and for you to get nervous or concerned. These are, these are manageable things. It's just complex situations that really at this. Present moment. The best thing that you can do is focus on your personal finances, keeping things in order for yourself, for your family, and I'm providing the information so you can manage accordingly.

This. Situation with the Fed. We're going to see how this plays out. The [00:21:00] last thing I wanted to leave you with today is that the latest, look at how the market is. There's like a 50 50 chance of a fed rate cut in September. So there's not much expectations in the here and now. You, you would know now after going through everything here on this episode Y.

And it makes sense as much as we know how it makes sense. The other side of it is, part of this does need to change. There needs to be a change in this formula for there to be meaningful relief. I think that's what that comes down to. Thank you so much for listening today. I hope you found this helpful and useful.

Looking forward to next week, we're gonna actually dive into the National Association of Realtors Existing Home Sales Data. There won't be any mortgage Monday for the holiday. Happy Memorial Day to everybody. I hope you all have a wonderful, happy and safe weekend and take good care. [00:22:00]