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Mortgage rates could soar to 8.4 percent if Biden continues to refuse to negotiate over debt limit

By Elizabeth Delaney
|
May 12, 2023

The cycle of the United States at risk of crashing into its debt ceiling, Congress and the White House fighting over raising it, and a stopgap measure being put in place has apparently come full circle again.

Though the U.S. has never truly defaulted on paying its bills, there is always speculation and there are always "worse case scenarios" played out by experts in various industries.

Impact to the Housing Industry in the Event of a U.S. Government Default

The housing industry is one of many that would be impacted if Congress and President Joe Biden couldn't reach an agreement and there was a default, with housing rates anticipated to reach 8.4 percent in the event of a debt default, according to Zillow.

In such a case, that would mean that a typical home mortgage payment would be as much as 22 percent higher by September.

While that's not anticipated to impact home values a great deal, it will make the affordability of  houses more challenging for buyers, especially first-time buyers.

"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," said Zillow senior economist Jeff Tucker.

"Home values might not see a notable drop, but higher mortgage rates would severely impair affordability, for first-time buyers especially," Tucker added.

He went on to note that, "It is critically important to find a solution and not put more strain on Americans who are striving to achieve their homeownership dreams."

The former CEO of the Mortgage Bankers Association (MBA), David Stevens, who also served as the Federal Housing Administration commissioner during the Obama administration, told Newsweek that Tucker's view is "spot on."

"If the U.S. defaults on its debt, interest rates could skyrocket in the U.S.," Stevens said.

If the U.S. were to actually default, there would definitely be a severe disruption that would take place in the economy, according to Zillow.

Besides the housing market, the spike in interest rates would also include credit cards and other borrowing costs, such as auto loans and personal loans, according to Newsweek.

This most recent incident putting the U.S. at risk for default first came to a head in January, when the U.S. hit its $31.4 trillion debt ceiling, according to Daily Mail.

U.S. National Debt Level Declared to be at a Crisis Level

The national debt level for the U.S. has been declared as being at a crisis level for quite a while now, which is part of the reason why Republicans are trying to fight for spending cuts to help balance the ever-increasing debt ceiling.

As of 2019, the national debt is more than five times the U.S. government's annual tax revenues, according to Independent Institute.

More recently, by the end of the 2022 fiscal year, the federal debt that the public held was about 97 percent of the GDP, according to the U.S. Government Accountability Office.

Since 1960, Congress has increased the debt ceiling 78 times. The United States has had a debt ceiling for more than a century, according to NPR, so the games Congress plays across the aisle and with the White House are quite familiar. At the same time, it's a serious situation in need of a legitimate solution.