The interest rate on a standard 30-year mortgage would jump as high as 8.4% if the U.S. defaults on its debts this summer, raising housing costs for new buyers by 22%, according to a new analysis by economist Jeff Tucker of the real estate firm Zillow.
A default would cool the housing market overall, reducing sales by 23% by September. Over the next 18 months, sales would drop by an estimated 700,000 units relative to the current, non-default projection. Home values would fall by 5%, relative to the baseline.
The Zillow analyst also expects a default to trigger a recession that pushes the unemployment rate up to 8.3% this fall, though much depends on how long the default lasts.
“Much uncertainty surrounds these estimates, but there’s little doubt that a default would be a major negative shock to housing market activity,” Tucker said. “Home buyers and sellers finally have been adjusting to mortgage rates over 6% this spring, but a debt default could potentially raise borrowing costs even higher and send the market into a deep freeze.”
Source: finance.yahoo.com
ENB
Sandstone Group
