Home buying costs could shoot up by double digits if the U.S. defaults on its debt for the first time in history, according to an analysis released on Thursday.
Mortgage rates would soar to 8.4 percent and increase buying costs overall by 22 percent, according to a a worst-case-scenario analysis from the real estate company Zillow.
“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,” said Zillow senior economist Jeff Tucker.
“Home values might not see a notable drop, but higher mortgage rates would severely impair affordability, for first-time buyers especially,” Tucker continued. “It is critically important to find a solution and not put more strain on Americans who are striving to achieve their homeownership dreams.”
A default would raise the monthly payment for a the typical home to $2,100 in Zillow’s worst-case scenario.
The U.S. could run out of cash to avoid a default as soon as June 1 if the debt ceiling isn’t raised or suspended, according projections from Treasury Secretary Janet Yellen, the Congressional Budget Office, and the Bipartisan Policy Center.
Experts say default would shake the global economy and financial system, potentially causing a recession and financial crisis.
The debt limit was last raised in 2021 to roughly $31.4 trillion.
Mortgage rates have already doubled in a little more than a year as the Federal Reserve raised interest rates to combat inflation. At their highest point last fall, the 30-year fixed rate reached 7.08 percent before settling above 6 percent in the first half of 2023.
Zillow also projects that the combined impact of both buyers and sellers pulling back from the market would result in 23 percent fewer existing home sales.
Still, in the event of a default, home values would not take a huge hit in the long term. The real estate company said home values could still grow by about 1 percent by the end of 2024.
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