Credit ratings agency Standard and Poor’s (S&P) followed through on its warnings and downgraded U.S. treasury bonds from AAA to AA-plus. Depending on how you look at the move, its impact on local housing markets could either be real or overblown.

Let’s take a look at why a single ratings firm downgrade could or could not be a problem for the Texas housing market (or, for an inside look at how ratings firms rate a nation’s credit, check out Planet Money’s fantastic podcast about the subject):

No biggie:

America is still an investment safe haven.

U.S. treasury bonds are still just about the safest investment you can make, despite the big economic issues facing our country. Europe is on the brink of collapse. Despite China’s enormous growth, it faces some severe structural issues that will likely keep it from ever becoming an America-esque superpower. Meanwhile, America still has the best combination of fundamentals needed for growth, like natural resources, the ability to collect tax revenues, military protection of our shipping lanes and economic interests, etc. Housing factors like interest rates will likely reflect this.

In fact, after Japan’s credit rating was downgraded in 2001, its interest rates actually sank. True to form, U.S. treasury interest rates also fell this morning. S&P doesn’t have any insider knowledge about the U.S. economy, so they’re essentially making the same judgement calls as individual investors who—according to today’s news—seem eager to keep buying.

Bad News Ahead:

It’s a blow to consumer confidence.

In aggregate, markets are largely irrational things. Consumers will usually make decisions based on their own desires and fears. So even if America has strong fundamentals, if people don’t feel very confident about the future, they won’t buy things like clothes, cars, and (yes) homes. A prominent ratings firm like S&P can fuel the fire of uncertainty.

Furthermore, folks with large stock portfolios have been slammed over the past few weeks, which means there will be both less of a mood to buy homes and less money to do so.

Pension rules punish.

Some prominent pension funds are required to hold only AAA-rated corporate and treasury securities, and will have to sell their U.S. bonds as result of the downgrade. This withdraws liquidity from our markets, and could make it more expensive for the government to borrow funds.

The downgrade isn’t entirely groundless.

Even if we’re better off than most countries around the globe, we’re still facing some steep challenges. There’s no easy way to slow the growth of healthcare costs — the main driver of our long-term deficits. Employment is dragging its feet. And, right or wrong, the fact that a sizable faction of Congress was willing to blow through the debt ceiling and begin defaulting on some of our obligations should rightly make U.S. bonds seen as not entirely risk-free.

Here at Texas Lending, we’ll make it as easy as possible for Texans to get the loans they need when it’s time to buy. Between our Texas home purchase loans, Texas home equity loans, and Texas home refinance loans, we can find a loan solution perfect for your family’s unique needs.

Let us know what you think — will the S&P downgrade impact the local housing market?