U.S. Credit Downgrade Sparks Market Shifts: What It Means for Real Estate

For the first time in history, all three major credit agencies—Moody’s, S&P, and Fitch—have downgraded the U.S. credit rating, citing unsustainable debt levels and growing fiscal strain. This historic move is pushing Treasury yields higher, influencing mortgage rates, and coinciding with a surprising surge in housing inventory.

• Credit Rating Downgrade - Interest on US debt is projected to reach 30% of federal revenue by 2035, signaling potential fiscal strain.

• Treasury Yield Increase - This downgrade coincides with a rise in the 10-year Treasury yield, which moved above 4.5% on Monday, May 19, 2025, and currently sits at 4.483%, up 0.044% from recent levels. The spread today stands at 254 basis points.

• Mortgage Rate Impact - This shift is influencing mortgage rates, with the average 30-year fixed rate at 7.04% today, slightly down from 7.09% a year ago. Rising yields and credit concerns often push borrowing costs higher, affecting mortgage affordability.

• Housing Market Inventory Surge - Additionally, the housing market shows a notable trend: active listings in May 2025 have surpassed the typical seasonal peak seen in September/October 2024, reaching 691 listings compared to 375 sales. This increased inventory could provide more options but may also reflect slower demand amid higher rates.

These interconnected trends—a historic credit rating downgrade, rising Treasury yields, elevated mortgage rates, and a surge in housing inventory—point to a challenging economic environment moving forward.

Reach out to discuss what this means for you and your unique goals.