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What Will The US Downgrade Do To The US Housing Market

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Uploaded on Aug 8, 2011

There is no question the downgrade isn't going to help us.

Shelf your personal feelings about the ridiculous shenanigans going on in Congress. Hold off on your out cries over the absurd fact that one of the causes of this problem is the exact same agency that downgraded us. What does this downgrade really mean for the housing market?

Stock Market Slaughter

Yesterday was the first day since S&P's downgraded the US credit rating, and the Sell First, Ask Questions Later principle was in full effect at the opening bell. Within the first few minutes the Dow was down 250 points. The flight to a safer harbor for investors' money continued throughout the day.

The market downturn came on the heels of a brutal week for the market, capped off when the Dow lost 512 points on Thursday. All of this was spurned by the S&P's downgrade which was said to have occurred for many reason, two main ones being the time it took for Congress to come to a decision and the fact that only $2 trillion in U.S. deficit reduction was called for over the next 10 years; S&P had called for $4 trillion.

What's Up With Rates

We can expect to see rates edge higher, and soon begin to dominate adjustable rate loans. "The impact on your wallet of the Standard & Poor's downgrade of the nation's credit rating is similar to what would happen if your own credit score declined: The cost of borrowing money is likely to go up," the Washington Post explained in the aftermath of S&P's decision.

The 10-Year T-Note is what most interest rates are based on. And according to the Washington Post, "the downgrade could increase the yields on those bonds, forcing the government to spend more to borrow the same amount of money." So this can cause many consumer driven loans, such as mortgages and others linked to these yields, to rise.

The time it takes for the possible rise in rates is hinging on what happens with Moody's and Fitch. If the other two rating agencies don't agree with S&P's, we might not experience too many ill effects at all. However, many analysts are betting they follow suit.

So Now What

We basically have three clients at any given time, past, present and future clients. Your past clients, if they have a fixed rate loan, will likely not feel too many ill effects. Neither will any clients you currently have locked in and closing soon.

The biggest challenge for most is going to be the prospective client. Millions of dollars were lost in the last 5 days. People are scared for the future, and the last thing on their list is to spend tons of money when they just lost so much.

The one silver light I've been lowing around these past few months has been the idea of low rates and credit restrictions. The way I see it these low rates have actually allowed tight credit and lending regulations to stay in place. Once rates begin to tick up we might see lender restrictions loosen in an effort to help people get into homes.

Question Of The Day

Unfortunately, a correction in the market like this was needed. What's your take on the recent Wall Street plunge and what its effect on the market might be?

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