Debt Ceiling Stalemate Threatens Housing Market
With the U.S. on the precipice of a debt default, the nation’s housing market hangs in the balance. A recent analysis from Zillow warns that a failure to raise the debt ceiling could plunge the housing market into a “deep freeze,” causing a surge in home-buying costs and mortgage rates.
Zillow senior economist Jeff Tucker said, “A default would be a major negative shock to housing market activity.” In a chilling prediction, Tucker forecasts a 22% increase in home-buying costs and a potential 8% mortgage rate, not seen since the early 2000s. He further projects 23% fewer existing home sales and a 5% reduction in home values by the end of 2024.
Time is running out, with Treasury Secretary Janet Yellen warning that the nation could run out of money as early as June 1 if the debt limit isn’t raised.
Meanwhile, on Capitol Hill, House Speaker Kevin McCarthy (R-CA) has voiced frustration with the lack of progress in negotiations with the White House. He reiterated this week that “there is no movement” toward a resolution.
House Republicans have been proactive, passing a bill that raises the borrowing limit and includes budget cuts. Joe Biden and Senate Democrats, however, insist on a “clean” debt ceiling bill and vow to negotiate any spending cuts separately. This stance is counterproductive to a swift resolution, further deepening the stalemate.
McCarthy has been critical of the White House’s handling of the debt ceiling negotiations, expressing concerns about the lack of tangible progress despite ongoing talks.
“If you look at the timeline to pass something in the House and pass something in the Senate, you’ve got to have something done by this week, and we are nowhere near any of that,” McCarthy stated.
The speaker, determined to prevent a default, has emphasized the urgency of reaching an agreement and has hinted at possible solutions. He cited unspent COVID relief funds as an example, arguing they should not be a negotiating point when considering work requirements attached to that money.
While President Biden remains optimistic about a potential agreement, stating, “I really think there’s a desire on their part, as well as ours, to reach an agreement, and I think we’ll be able to do it,” this sentiment isn’t shared by McCarthy.
“I still think we’re far apart,” McCarthy told NBC News. “It doesn’t seem to me yet that they want a deal.”
Such a scenario leaves the U.S. on the brink of a potentially catastrophic economic outcome. Moreover, with the housing market already fragile, a default on U.S. debt could lead to serious negative implications, including spiking interest rates and a decrease in demand for Treasuries. The repercussions were palpable the last time the U.S. came close to a default in 2011, with Standard and Poor’s downgrading the U.S. debt rating.
The clock ticks on as both sides prepare for another round of negotiations. The choices made in the coming days will determine the nation’s fiscal trajectory and the fate of millions of American homeowners and prospective buyers.