Defaulting on the nation’s debt could mean catastrophe for the housing market, industry members told Congress late last week. In the discussion among Congress members over the federal debt limit and whether it will be extended, housing industry members weighed in during a hearing before the Senate Committee on Banking, Housing and Urban Affairs.
In particular, such an action would mean a hit to home equity among Americans due to rising interest rates and other byproducts of a default, said National Association of Realtors president Gary Thomas.
“A default would be devastating for homeowners whose largest asset would lose value and equity, for home buyers who would see dramatic increases in interest rates and tighter credit standards, and for entire communities that are still grappling from the impact of the financial meltdown,” said Thomas, broker-owner of Evergreen Realty, in Villa Park, Calif. “As the leading advocate for housing issues, NAR is committed to protecting the value of homeownership from the avoidable and substantial harm that would be inflicted by Congress’s inaction to avert a default.”
Citing the potential impact of a default in real terms, Thomas cited an example of a 1% rise in mortgage rates that would lead to 450,000 fewer home sales and pricing many middle-income Americans out of the housing market.
The shift would translate into a 10% average increase in mortgage payments for a borrower earning $60,000 with a $200,000 mortgage, he said.
Reports late Monday indicated Congress members were “edging closer” to a decision to raise the debt limit, though a consensus has yet to be reached.
Written by Elizabeth Ecker