WASHINGTON — Mortgage rates jumped past 7% after credit agency Moody’s downgraded the U.S. government’s credit rating, intensifying pressure on an already strained housing market and creating new challenges for Americans nearing retirement.
The downgrade — which lowered the U.S. credit rating from AAA to Aa1 — was the last of the major ratings agencies to strip the country of its once-pristine financial status. In the wake of the announcement, yields on 10- and 30-year Treasury bonds rose sharply, dragging mortgage rates up with them.
On Monday, the average 30-year fixed-rate mortgage surged to 7.04% before retreating slightly to 6.99%, according to Mortgage News Daily. While the uptick may seem modest, it comes at a time when buyers and retirees alike are facing rising costs and economic uncertainty.
“The housing market really does not need another factor pushing mortgage rates up — or preventing them from coming down,” said Jake Krimmel, senior economist at Realtor.com.
The housing market has already seen demand wither under the weight of higher borrowing costs and inflated home prices. According to the Federal Reserve Bank of Atlanta, the gap between the median household income and the income needed to afford a typical U.S. home is now wider than it’s been in decades. In 2024, home sales fell to their lowest level in 30 years, a trend that has carried into the typically busy spring season.
“Prospective buyers were already struggling with affordability,” Krimmel said. “Now, with Treasury yields reacting to the downgrade, mortgage rates are ticking up again.”
Even though some sellers are responding by lowering prices — with Zillow reporting that 25% of listings saw a price cut in April — the average U.S. home price remains high at $438,500, according to Redfin.
But the spike in rates affects more than just first-time buyers. Financial experts warn that retirees and pre-retirees are particularly vulnerable to the ripple effects of a downgraded U.S. credit rating.
“Servicing $34 trillion in debt just got more expensive,” said Michael A. Scarpati, CFP® and CEO of RetireUS, a fintech platform that connects Americans with fiduciary financial advisors. “This credit downgrade was likely a key factor behind the Trump administration’s aggressive cost-cutting efforts under the DOGE initiative. But even that wasn’t enough to stop what’s been building for years.”
Retirees often rely on bond-based investments or fixed-income strategies that are directly impacted by Treasury yields. When yields climb due to increased risk, the value of existing bonds typically falls. That can erode portfolio stability and shrink retirement income — especially for those already drawing down assets.
“A move like this sends a clear message to both markets and taxpayers: The U.S. is starting to lose its grip as the world’s most reliable economic powerhouse,” Scarpati said. “We should expect higher borrowing costs, tighter government budgets, and more pressure on programs like Social Security and Medicare in the years ahead.”
The mortgage spike also poses a threat to housing supply. Builder sentiment dropped last month, with developers citing elevated interest rates and political uncertainty as reasons for delaying new projects. That could stall efforts to address the housing shortage, particularly in high-growth regions.
Still, some silver linings remain. A growing number of builders are now offering discounts and incentives. According to the National Association of Home Builders, 34% of builders reported cutting prices in May, up from 29% in April.
But for many, especially older Americans weighing retirement or relocation decisions, the costs are still too high — and the risks too unpredictable.
While Moody’s downgrade might sound like a Washington problem, its real consequences are now visible on Main Street. From higher mortgage rates to declining bond values and pressure on government programs, the credit rating cut is reshaping financial decisions across the country.
“We’re entering a new era,” Scarpati said. “It’s not just about market volatility anymore — it’s about how we plan, protect, and prepare for what comes next.”
For Americans nearing retirement, that means rethinking traditional assumptions and taking a more proactive, tax-efficient approach to preserving their wealth. For homebuyers, it may mean waiting longer — or revisiting what “affordable” really means.
