Debt Drama Another Threat to a Fragile Housing Market
The posturing and debate going on in Congress and at the White House over raising the debt limit is creating economic uncertainty. This uncertainty is causing changes and hesitation in the activities of investors and major corporations. If investors get spooked, interest rates could be driven upward. Not only that but home prices could be further depressed and the economy would take another negative shock.
Interest rates are low right now, meaning the government could borrow cheaply to finance debt. Even with low rates, there are few buyers for homes these days. Many simply can’t qualify for a mortgage. Just as many or more are afraid to venture into the market, fearing more downward pressure on prices. Foreclosures keep coming, and buyers fear they will continue to force home prices down. They are afraid to buy and risk negative equity.
As the debates continue, and the nation gets closer to the August 2 date for raising the debt limit, default looms as a possibility. The major negative effect would be the failure to make payments on some Treasury Bonds. Faith in the U.S. government’s continued payment on treasuries is a cornerstone of the financial markets worldwide. These markets are based on trust, and that trust would be severely damaged if there is any default on payments of bond interest.
If there is a default, many say it would be intentional to further certain political objectives, and the trust in the U.S. financial abilities would be damaged, and interest rates would go up immediately. When investors demand higher rates for Treasury Bonds, this will force up all interest rates, particularly those for home mortgages.
As bad as housing is now, doomsayers are predicting that a default and higher interest rates will put another nail in the coffin, as the few homes being sold now are moving primarily due to very low interest rates. While there are plenty of reasons to criticize government spending and to demand fiscal responsibility, taking this debate up to the final days is disruptive to worldwide financial markets and damages the faith and credit of the U.S.
As for real estate investors, they can look forward to more opportunities to buy at deep discounts and take advantage of a population moving more and more toward being renters, at least for the next 5 years or so.
The posturing and debate going on in Congress and at the White House over raising the debt limit is creating economic uncertainty. This uncertainty is causing changes and hesitation in the activities of investors and major corporations. If investors get spooked, interest rates could be driven upward. Not only that but home prices could be further depressed and the economy would take another negative shock.
Interest rates are low right now, meaning the government could borrow cheaply to finance debt. Even with low rates, there are few buyers for homes these days. Many simply can’t qualify for a mortgage. Just as many or more are afraid to venture into the market, fearing more downward pressure on prices. Foreclosures keep coming, and buyers fear they will continue to force home prices down. They are afraid to buy and risk negative equity.
As the debates continue, and the nation gets closer to the August 2 date for raising the debt limit, default looms as a possibility. The major negative effect would be the failure to make payments on some Treasury Bonds. Faith in the U.S. government’s continued payment on treasuries is a cornerstone of the financial markets worldwide. These markets are based on trust, and that trust would be severely damaged if there is any default on payments of bond interest.
If there is a default, many say it would be intentional to further certain political objectives, and the trust in the U.S. financial abilities would be damaged, and interest rates would go up immediately. When investors demand higher rates for Treasury Bonds, this will force up all interest rates, particularly those for home mortgages.
As bad as housing is now, doomsayers are predicting that a default and higher interest rates will put another nail in the coffin, as the few homes being sold now are moving primarily due to very low interest rates. While there are plenty of reasons to criticize government spending and to demand fiscal responsibility, taking this debate up to the final days is disruptive to worldwide financial markets and damages the faith and credit of the U.S.
As for real estate investors, they can look forward to more opportunities to buy at deep discounts and take advantage of a population moving more and more toward being renters, at least for the next 5 years or so.