San Carlos Real Estate Agent, San Carlos Realtor Potential for National Debt Default Has Buyers and Sellers Nervous. | The White Oaks Blog
San Carlos Real Estate July 30, 2011

Potential for National Debt Default Has Buyers and Sellers Nervous.

by Chuck Gillooley

Shock Waves in the Mortgage Market.

As we stand only a few days from a potentially historic default on our national debt, many home buyers and sellers are understandably nervous about the what this all means to the real estate market, especially if an agreement is not reached to raise the debt ceiling by this coming Tuesday.   Most financial experts predict that one of the many repercussions from federal default will be the skyrocketing of interest rates,  which is something that would likely cripple the housing market virtually overnight.

One of the main reasons that rates are so low today is that the vast majority of  home loans that are written today are bundled into mortgage-backed securities that are guaranteed by the government before they are sold to the market.    The wide-spread belief by economists is that the “guarantee” by the government will be rendered nearly worthless if the government defaults on its debt obligation.    Consequently, investors will want a much higher return on these securities to offset the increased risk, and that increase in interest rates gets passed directly to the consumer.  (It’s far more complicated than what I have explained in a few words here, but you get the idea.)

The potential for a spike in interest rates doesn’t just impact those looking to buy or sell.  Homeowners with adjustable rate mortgages are likely chewing their fingernails right now as they wait to see what may happen to their monthly payments.

With both sides currently at a stalemate, it’s going to make for some nervous days ahead for everyone.

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Comments 1
  • Chuck
    I agree the mortgage market will be “jumpy” the next few weeks. I was happy to get 2 buyer loans funded and escrows closed this week.
    We have nothing to few but fear itself, Winston Churchill.
    Much hysteria in media over this issue but let’s remember fed govt shut down for 3 weeks in 1995 and 1996 when Clinton locked horns with GOP Comgress over debt ceiling increase and budget issues. We survived then and Clinton and Gingrich produced 4 years of balanced budgets. Maybe the same will happen now. At the end of the day we all agree that getting fed govt running in a fiscally sound manner will help economy and create jobs and clean up a mess our kids and grandiose should NOT have to clean up.

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