Understanding the U.S. Credit Downgrade and Real Estate

Somewhere in between the disagreements and posturing in Washington, there are thoughts of the American people. Young and old, rich and poor. A consistently high unemployment rate, a badly suffering housing market, and strong concern of what’s next? Regardless of how it happened and whose to blame, it happened. the United States; the Superpower of this world has gotten it’s credit rating downgraded. “In the Xinhua commentary, China scorned the United States for its “debt addiction” and “short sighted” political wrangling. Just incredible.

Will Rates Rise or Fall?
The analyst predict more of a rise in interest rates than a drop. Terry Belton, global head of fixed income strategy at JPMorgan Chase states that a drop to AA will mean permanently higher borrowing costs for the U.S. government. Government lending rates act as a floor for other lending rates to include mortgages, student loans, corporate debt and other types of loans. They will all become more expensive.

Belton estimates that borrowing costs would rise between 0.60 to 0.70 points. That may not sound like much. But mortgage interest rates, which have hovered around 4.5 percent for the last several weeks, could rise by at least that amount, to more than 5.1 percent.

What it Means for Buyers and Sellers?

Simply put, real estate brokers will have to build a richer strategy to accomplish the goals of their clients. This is not the time to “be in real estate”, it’s the time to practice and master real estate. Your real estate professional should be knowledgeable about the market, enrolled in continuing education, and an expert in distressed markets.