If a deal is not reached on the debt ceiling by June 1, the U.S. government will default on its debt, resulting in higher mortgage rates. That is the prognostication from Zillow, which predicts mortgage rates peaking at 8.4% by September — a 22% increase over current rates.
The forecasters are not saying that the government would default on their debt — it never has happened in the country’s history — but, if it were to happen, this would be the scenario: a bleak housing market, with fewer people able to afford a home and a projected 23% decline in existing home sales in the next four months.
“Home values might not see a notable drop, but higher mortgage rates would severely impair affordability, for first-time buyers especially,” Zillow senior economist Jeff Tucker told World Property Journal. “It is critically important to find a solution and not put more strain on Americans who are striving to achieve their homeownership dreams.”
The sharp increase in mortgage rates also affects current homeowners wishing to sell their homes. Those who bought their houses locked into very low mortgage rates — as low as 3% — but, as much as they want to sell, thanks to higher home prices, they know they would have to take out another mortgage to buy a new house, with the rates twice to three times higher than their previous rate.
Zillow predicted that home values would see only a negligent decline by 1% from now until February. The only positive prediction the firm could offer was a 1% increase in home values from now until the end of the year; however, that forecast was down from an initial prediction of 6.5%.
