Realtors say homebuyers are already being frightened off, despite an unexpected drop in mortgage rates. According to mortgage experts, the downgrading of Fannie Mae and Freddie Mac was a logical next step.
"There is a serious problem that is perceived to exist in the U.S. economy," says John Holmgren, former president of the California Mortgage Bankers Association and currently with Palo Alto's Opes Advisors. "This is going to affect the cost of credit in the long run. It could affect our economy in the long run as people have less confidence in the U.S. economy and that has implications for home prices, among other things."
Fannie Mae and Freddie Mac own or guarantee about half of all U.S. mortgages and they account for nearly all new mortgage loans. Their downgrading was expected to push interest rates higher. But so far, it's had just the opposite effect.
"For the 10-year, 30-year fixed rate, the adjustable 5/1 rates, those are actually going downward by as much as five to seven basis points today, so this is actually having a positive effect on people who want to refinance or even purchase their first home," says John Lawson of San Ramon's Commerce Bank Mortgage.
While that may be a short-term benefit to some, the larger impacts of the Freddie and Fannie downgrades may be in the minds of consumers.
"We're seeing actually a reduction in the number of people who are looking for homes and the people that are purchasing seem to be more conservative," says realtor Vickie Nagy. "They are concerned about a double-dip recession and what's going to happen in the future with their lost equity."
Nagy says she and her husband recently bought a new home in April. Monday morning, because of the interest rate drop, they locked in a lower rate for a refinance.
