The U.S. Debt Ceiling: Potential Impacts on the Housing Market (2024)

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The U.S. Debt Ceiling: Potential Impacts on the Housing Market? ›

Although the debt ceiling itself doesn't directly determine mortgage rates, its impact on the overall economy could wreak havoc on rates. The potential consequences and uncertainty associated with reaching the debt ceiling could impact investor confidence and lead to changes in interest rates, including mortgage rates.

If the federal government defaults on its debts, mortgage rates would climb, home sales would plummet and a housing market that's already unaffordable for many potential buyers would get much farther out of reach, according to a new analysis from Zillow.

Increasing the debt ceiling has an inverse effect on the country's reputation in the global markets. As such, it may lead to a downgrade of the credit rating of the U.S. while increasing the overall cost of its debt.

When a country accumulates substantial debt, it creates a higher demand for borrowing, competing with individual and business borrowers. This increased competition for funds can drive interest rates upward, including mortgage rates.

Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the United States' financial market and tip its economy—and the world's—into immediate recession.

How would a debt-ceiling breach impact mortgage rates? It could get even more expensive to buy a home because a default would force the Treasury Department to pay higher interest on its bonds to convince investors to stick around — and mortgage rates and other borrowing costs tend to follow Treasury rates.

A U.S. debt default would lead to a slump in stock and bond markets, while eroding the U.S.' financial standing in the world, analysts say.

Under normal conditions, the Treasury sends Social Security payments one month in arrears. That means the check you receive in June covers your benefits for the month of May. If the debt ceiling isn't raised, the Social Security payments due to be sent to beneficiaries in June would most likely still go out.

If the US defaults, the value of Treasury bills will collapse. The longer the default lasts, the more the price will fall. But you should not be thinking other investments will be safe. If we default, all financial assets will lose value.

That means tamping down on excess spending, making a budget, and shoring up emergency savings to cover at least three months of living expenses. Since a debt default would likely send interest rates soaring, any credit card debt you're saddled with may soon cost you more.

What happens to my mortgage if the housing market collapses? ›

While home values are decreased, lenders also make it more difficult to get financing. Homeowners may not have enough equity or income to qualify for refinancing. Even if they do, the terms may not be as favorable as they once were, making it harder to reduce monthly payments or shorten the loan term.

Foreign holdings peaked at 49 percent of DHBP in 2011, but dropped to 29 percent by the end of 2023. Investors in Japan and China hold significant shares of U.S. public debt. Together, as of December 2023, they accounted for nearly $2 trillion, or about 7 percent of DHBP.

Typically, in recessions, the demand for houses declines and as a result house prices will fall. This was the case in the last recession back in 2008 when the housing bubble burst and the recession began.

Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents. Congressional leaders in both parties have recognized that this is necessary.

Several countries have debt limitation laws in place. Only Denmark and the United States have a debt ceiling that is set at an absolute amount rather than a percentage of GDP. The US Congress began using the measure in 1917 and modified the financing law in 1939 to give the treasury more flexibility in issuing debt.

The likelihood of the United States defaulting on its debt remains extremely low (technical defaults due to the statutory debt limit are a different story). The United States benefits from issuing debt in its own currency, which is also the global reserve currency.

A15: If a money market mutual fund held securities on which the U.S. Treasury defaulted on the payment of interest or principal, then the fund would need to sell those defaulted securities, unless the fund's board of trustees determines that disposing of the securities would not be in the best interests of the fund.

Most debts will be paid by your estate, out of your assets, before the remainder is distributed to your heirs. If the estate's assets do not cover all the debt, much of it will be forgiven.

In this circ*mstance, domestic spending has been given priority over bond holders and the U.S. government defaults on its debt. Immediately, the U.S. dollar experiences a sharp decline in value relative to other currencies, as last-minute hopes of a political compromise are dashed.