“If the crisis grinds on for longer, all these impacts would last longer and be more severe,” he said. The severity of the impact depends a lot on the duration of the drama, Tucker added. If there were to be a debt default, the biggest projected deficit would come in September, with an estimated 23% fewer existing home sales. Zillow projects the combined impact of buyers and sellers pulling back would wipe out nearly one-quarter of expected sales in some months. Mortgage rates remain volatile, tick down after climbing for two weeks In addition, sales declined 22.0% from one year ago. In a report by the National Association of Realtors, existing-home sales edged 2.4% lower in March to a seasonally adjusted annual rate of 4.44 million. “Home buyers and sellers finally have been adjusting to mortgage rates over 6% this spring, but a debt default could potentially raise borrowing costs even higher and send the market into a deep freeze.”ĬUTLER BAY, FLORIDA - APRIL 20: A 'For Sale' sign advertises a home for sale on Apin Cutler Bay, Florida. “This would be a scenario of a recession being triggered by a huge contraction in federal outlays,” said Tucker. This analysis projects what might happen in the event of a prolonged default, and it is not a prediction that a default will occur. In Zillow’s analysis, interest rates would spike, peaking at 8.4% and unemployment would surge, peaking at 8.3% from its current rate of 3.4%. What that means for the housing market is that the cost of borrowing would rise dramatically and sales would be dropping.” “This would reduce lending and credit availability throughout the financial system. “While we don’t expect a debt default to occur, if it did, it would have unprecedented effects on the financial system,” said Jeff Tucker, a senior economist at Zillow. If the United States defaults on its debts, we can do the past 12 months all over again. In other words, if you thought this past year of skyrocketing mortgage rates and plunging sales was miserable for the housing market, just wait, there’s more. There would be 700,000 fewer homes sold in the 18 months after July - that’s almost 12% of the 6 million sales currently expected during that span. Housing costs would spike by 22% with the rate for 30-year, fixed rate mortgages rising above 8%. But, if it were to happen - which could be as soon as June 1 without intervention - it would further crush an already wounded housing market, according to an analysis by Zillow. The United States has never defaulted on its debt, and it remains an unlikely outcome of the current standoff about raising the debt ceiling.
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