— Forget the debt rating downgrade. When it comes to the nation’s dismal housing market, it’s the economy, stupid.
That's good news for the small number of Americans out there who are ready to buy a home, have the creditworthiness to qualify for a loan and are hoping to get a nice, low mortgage rate.
“As long as the economy is limping along like this, interest rates are not going to increase,” said Greg McBride, senior financial analyst at Bankrate.com.
In fact, short-term market interest rates have fallen since Standard and Poor's decision late Friday to downgrade federal debt, and mortgage interest rates have stayed largely unchanged at levels that are near 50-year lows, McBride said.
Still, the latest dramatic developments are bad news for people who would like to see the housing market get up off the mat.
“With unemployment above 9 percent and weak job growth, that really has been the limiting factor,” said Mike Fratantoni, vice president of research and economics at the Mortgage Brokers Association. “Households, particularly young households, are unwilling to pull the trigger.”
Home sales, already at low levels, fell unexpectedly in June, although there are signs the market is beginning to stabilize.
S&P’s decision to downgrade the rating on long-term federal debt also triggered a rating drop for mortgage giants Fannie Mae and Freddie Mac, because both are reliant on the government. All now carry an AA+ rating, one step from the top-drawer AAA rating. But the decision appeared to have little effect on the already weak housing market, and there was no immediate evidence that it would spark a rise in mortgage rates.
David Crowe, chief economist for the National Association of Home, said other factors besides the ratings news are keeping people from buying.
For one thing, they’re worried home prices might fall further. For another, banks have raised the bar for mortgage applicants, requiring higher down payments and credit scores than they did a decade ago.
Fears about job security also have played a major role.
The wild stock market swings of the past few days will serve only to keep potential home buyers on the sidelines a little bit longer.
In the longer term, mortgages may get a little bit more expensive, as lower demand for some U.S. securities translates into higher interest rates. But compared with fears about the overall economy, half of a percentage point on a mortgage rate is unlikely to be the deciding factor for a potential home buyer, Fratantoni said.