The U.S. Treasury is at risk of running out of cash by early June if Congress does not act, according to Moody's Analytics chief economist Mark Zandi. A potential default could have significant economic consequences, with the U.S. housing market being one of the most vulnerable areas.
Zandi explains that financial markets would likely put upward pressure on long-term rates, such as mortgage rates, if a default were to occur or even appear likely. As a result, the average 30-year fixed mortgage rate, currently at 6.55%, could go back above 7%, creating a significant increase in mortgage rates and leading to decreased housing affordability.
The housing market is already experiencing affordability challenges, with levels not seen since the housing bubble era. A potential spike in mortgage rates could worsen the situation, resulting in accelerated housing market correction and a further decline in home prices. Moody's Analytics predicts that home prices could fall 8.6% peak-to-trough in this cycle.
Zillow economist Jeff Tucker shares this concern, saying that a debt ceiling default could send the U.S. housing market back into a deep freeze. He agrees with Zandi that mortgage rates would rise, leading to a sharp slowdown in the housing market.
Tucker predicts that if the U.S. were to default, the average 30-year fixed mortgage rate could spike to a peak of 8.4% by September, resulting in a 23% decrease in home sales volumes. Additionally, Zillow predicts that national home values would go down by 1%.
Any significant disruption to the economy and debt markets would have major repercussions for the housing market, negatively impacting sales and increasing borrowing costs. It is critical for Congress to take action to prevent a potential default and ensure the stability of the U.S. housing market.
Social Plugin