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What the US Debt-Default Risk Means for the Housing Market

Government + Policy

What the US Debt-Default Risk Means for the Housing Market

The debt ceiling deadline is just a few weeks away, and though unlikely, a U.S. default could spell trouble for the housing market

May 15, 2023
Treasury debt ceiling information on iPhone on top of cash
Image: Tada Images / stock.adobe.com

Lawmakers are divided on the U.S. debt ceiling, just a few weeks from the deadline, meaning that the Treasury Department may not be able to avert an unprecedented default. If Congress fails to raise the limit in the coming weeks, Zillow’s senior economist Jeff Tucker says mortgage rates could reach 8.4% by September, causing a deep freeze in an already standstill seller’s market, according to Fortune

If mortgage rates top 8%, Zillow predicts existing home sales could drop 23% from 4.3 million in April to 3.3 million by September, a tough blow to the housing market just as it’s beginning to stabilize from a 2022 correction.

“When we forecast the evolution of the housing market over the next 18 months in the event of such a debt default, we estimate that existing home sales would fall as much as 23% relative to the no-default baseline forecast later this year, and that home values may be 5% lower at the end of 2024 than expected in the no-default scenario,” Zillow says. 

“Any major disruption to the economy and debt markets will have major repercussions for the housing market, chilling sales and raising borrowing costs, just when the market was beginning to stabilize and recover from the major cooldown of late 2022,” Zillow says.

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