Rumors are circulating through the news that an agreement to end the government shutdown and a possible debt ceiling rise, ending the current stalemate crisis that is affecting millions of Americans. I hope the rumors are true, but I’m not holding my breath.
If the debt ceiling crisis doesn’t get resolved soon, this could spell bad news for U.S. home buyers and the entire mortgage/real estate industry. Last week, Gary Thomas, president of the National Association of Realtors (NAR) warned that if the ceiling is breached and mortgage rates rise 1% (rates rising is an expected outcome of a debt ceiling breach), we can expect about 450,000 LESS homes to be sold. That’s nearly a half million homes that will not be sold, friends. Nearly a half million mortgages that will not be written. Not good for the economy. Not good at all.
Here is some of the article from the NAR website:
NAR President Gary Thomas testified yesterday at a Senate Banking Committee hearing.
“This is a bump in rates immediately because of the crisis, so it’s going to have a detrimental effect on the housing industry, which obviously has a detrimental effect on the overall economy,” he said.
He urged lawmakers to resolve differences and increase the debt ceiling because a slower real estate sector translates into a slower economy. He pointed to the debt ceiling impasse in 2011 as an instructive guide to the consequences of failing to act. In that situation, just the prospect of default forced up interest rates and slowed the economy, delaying the recovery from the recession by a year. “Financial market disruption, reduced consumer and business confidence, and slower job growth all happened when the debt limit was not increased until the very last minute,” he said.
Separately, NAR Chief Economist Lawrence Yun says even if the federal government decides to pay interest expenses after a debt ceiling breach, which would keep investors in U.S. Treasury bonds whole, other sectors of the economy would suffer. “Is it the case that some people who have been relying on Social Security checks no longer get those checks, or some of the military jets or tanks that have been purchased will not be purchased anymore?”
Here’s an interesting video of Thomas discussing his appearance before the Senate Banking Committee:
Obviously, we don’t want the debt ceiling to be breached. We don’t want rates to rise. We don’t want housing sales to slow and we don’t want mortgage originations to come grinding to a halt. What we do want is the government to figure a way out of the current impasse and to get back to work.