US credit downgrade ... when does it affect mortgage rates?

[jschmidt]

we were actually considering buying a house in the next few days and then I hear this on the news tonight. Are we not going to be able to get the good interest rates that we have been having recently? Or, when would that kick in likely?

[CathyA]

We've been so fortunate to have a home equity loan whose interest rate is extremely low. It would be a real bummer to have it go up. I guess we'd better try to pay it off alot sooner than expected. its really hard with 2 kids in college. Bummer.

[ApatheticNoMore]

It seems to me there are several potential factors here: first long term interest rates would have to rise which hasn't and may not happen (where else is the money going to go anyway? the stock market?).

Then if interest rates rise, housing prices may well fall, because if the monthly payment is to stay the same housing prices have to fall in that situation. Why is it important the monthly payment stay the same? Only if new buyers are struggling to pay it as it is, which in some places they may well be. But if this happens, it probably won't happen overnight.

The Fed could also probably mitigate any rise in interest rates IF it wanted. The Fed has been dictating the long term interest rate. It seems to me the motive is there: interest rates need to be low for the banks: so that people can pay their existing mortgages, so that housing prices can stay up. Plus for the Federal Government so that it can service it's debt. Not to mention all the other advantages of Qualitative Easing. Then again the Fed may decide to get (probably correctly) worried about inflation and not do anything.

A near zero interest rate has been terrible for those with savings accounts, CDs, money market accounts, and the like. I don't know if that will change, they were the necessary victims of a society that became entirely reliant on debt it could hardly afford (especially the Federal government) and unsustainable asset prices (housing and stocks).

[creaker]

My mortgage switched to a variable about 3 years ago - it's dropped every year including the change I have coming up. I haven't tried to lock in a fixed because I'm not staying - but I'm thinking this will be the last time it's dropping.

[puglogic]

I'd be buying that house and locking in a fixed rate now, if I were you, jschmidt. In fact, we're pondering refinancing to the current fixed rates, which are ridiculously low for the time being. I wouldn't go anywhere near an adjustable rate mortgage, myself.

[Spartana]

Do most people think housing prices WILL fall because of this as Apathetic says? Makes sense to me - if people aren't buying in a market with great interest rates, why would they be willing to pay even more in interest for the same houses they aren't buying now? I'm sort-of in the market for a new place (shared with sis and paying cash) so would normally wait to see if prices dropped. But we both would also be selling our current homes at, what might be, much less than their current values if we waited - and with far fewer buyers out there. So it's a Catch-22.

[jp1]

Apathetic is basically right. The average person has been 'educated' that the only cost or anything that matters is the monthly payment. If interest rates go up, either people have to be able/willing to spend more, or the actual purchase price has to fall.

Right now people are panic buying into treasuries, thus keeping interest rates low. At some point that money is going to go elsewhere (gold maybe?) in large enough amounts to either drive up interest rates or force the fed to do QE3 to buy up all the unwanted treasuries people are selling.