If lawmakers do not raise the debt ceiling by the August 2 deadline, mortgage interest rates will rise and the housing market will be hit hard, according to National Journal economics correspondent Jim Tankersley.
Among the bad scenarios Tankersley envisions is one in which the government, unable to borrow money, has to forgo payments to federal employees and contractors or cut off Social Security and Medicare disbursements. This loss of income would hamper people's ability to make mortgage payments and make it all but impossible for affected parties to purchase a new home.
While this would be a particularly dire situation, Tankersley says any significant rise in mortgage interest rates could spur a double-dip in the housing market, given recent reports that home sales remain down on a year-over-year basis nationwide, home prices are declining, and a possible shadow inventory of foreclosures threatens to further depress property values.
But Mark Calabria, a Cato Institute housing expert, told Tankersley house sales might only decline about 5 percent if interest rates go up. And though Bloomberg News blamed jitters about government default for a recent slight increase in the 30-year mortgage rate, Freddie Mac Vice President Frank Nothaft said rates have remained consistent, and low, despite anxiety about the debt ceiling.
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