What Happens to Real Estate Market if US Defaults on Debt?

The US economy is already struggling due to the pandemic, and now there is another potential catastrophe on the horizon: a default on its debt.

The US economy is already struggling due to the pandemic, and now there is another potential catastrophe on the horizon: a default on its debt. A recent analysis by real estate company Zillow reveals that if the US defaults on its debt, it could "crush" the fragile housing market in the country. The adverse effects will likely ripple through the entire world, causing significant economic turmoil.

According to the report, the cost of buying a home in the US will increase by a staggering 22%. Mortgage rates will rise significantly, with 30-year fixed rates shooting above 8%, which is almost double the current rate. The analysis predicts that if the US does default, the unprecedented effect on the financial system will reduce the ability to lend credit throughout the system. The burden of borrowing will become too high, and sales will decrease in the housing market.

What Happens to Real Estate Market if US Defaults on Debt?

Zillow's analysis paints a bleak picture. Interest rates will soar, peaking at 8.4%, and unemployment will reach a peak of 8.3%. The situation is already bad for the housing market, as home sales fell 2.4% in March, and total sales dipped 22% from a year ago due to the pandemic. Mortgage rates are already experiencing fluctuations, with rates falling after climbing for two weeks.

The largest expected shortfall is predicted to occur in September if the debt ceiling is not resolved. Home sales are estimated to plummet by 23% compared to the current levels. If the US defaults on its debt, the effects will be catastrophic and long-lasting. Mortgage rates can skyrocket, and investors will lose faith in almost all bonds, including the US Treasury bonds, which are considered safe, risk-free havens.

Zillow's analysis predicts that if the US defaults, home values will start to drop from August but only by 1% compared to the current levels through February 2024. As the cost of entering a house increases too high, many aspiring homeowners may defer their plans. The low demand will result in a drop in home values.

It's about three weeks until the government can no longer pay its bills, leading to a default, 'X day.' The US debt crisis is a ticking time bomb that could have severe global economic ramifications. The US government must take necessary measures to prevent the default on its debt. The uncertainty and risks associated with a default are too great to ignore, and the consequences will be felt by everyone for years to come.