How Will The U.S. Credit Downgrade Impact The Washington Real Estate Market?

According to leading credit repair companies, the S&P downgrade of US credit and the government backed mortgage entities Fannie Mae and Freddie Mac has some REO investors rattled. But how will the credit downgrade really impact Washington’s real estate market? Let’s take a look at a few possibilities:

1. If the downgrade remains throughout the year as S&P has indicated, we could possibly see higher mortgage interest rates. For now, interest rates have remained low and the Federal Reserve has expressed its intention to keep mortgage rates at historical lows. However, if other credit rating agencies make downward reassessments of America’s credit, the Federal Reserve may not be able to keep its promise.

2. Credit markets could contract further, making it more difficult for buyers to qualify for a mortgage. This is not a short-term problem; further contraction of credit availability would likely happen over the long-term if the national debt situation does not improve. REO investors and individuals interested in buying foreclosures might be better positioned if they try to buy while interest rates are still low and credit readily available.

3. One silver lining in the cloud is that the credit downgrade could cause the prices of REO properties to decrease. For those REO investors who want to buy and hold for longer than five years, buying into a depressed market has its benefits.

4. If companies and markets panic, we could see an increase in layoffs and a subsequent increase in foreclosures. High unemployment could increase the number of foreclosures on the market; but also lengthen the housing recovery. For those REO investors just buying into the real estate market, in the current environment long-term strategies for profitability are in order.

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