What is the US Debt Ceiling?
The US debt ceiling is the maximum amount of money that the US government is allowed to borrow. If the government reaches the debt ceiling without raising it, it will be unable to pay its bills and could default on its debt. This would have a significant impact on the US economy, including the real estate market.
How Can Breaching the Debt Ceiling Affect the Real Estate Market?
The impact of a debt ceiling breach on the real estate market would depend on a number of factors, including the severity of the breach and the length of time it takes to resolve. However, it is clear that a debt ceiling breach would have a negative impact on the housing market. It’s tough to understand the exact effects of this happening since it has never happened before, but here are three examples for what could be affected should a debt ceiling breach occur.
1. Higher Interest Rates for Potential Homebuyers
A debt ceiling breach would likely lead to higher interest rates, something we’re no stranger to at this point. Interest rates have made headlines in the past year as they were raised numerous times to help curb inflation.
When the government borrows money, it does so by issuing bonds. When investors buy these bonds, they are essentially lending money to the government. If the government is unable to pay its bills, investors will demand higher interest rates to compensate for the increased risk, which are passed on to the borrower. This would make it more expensive for people to borrow money to buy homes, start businesses, and make other large purchases. This will likely lead to a decline in home sales and prices as buyers who require a mortgage loan will drop out of the homebuying pool until rates stabilize and come back down. This isn’t likely to affect cash buyers, however.
2. An Economic Recession is More Likely
A debt ceiling breach could also lead to a recession by increasing market volatility and decreasing consumer confidence in the economy. Market uncertainty leads to investors seeking safer assets such as Treasury Bonds rather than real estate, while consumers will tighten their budgets and push a large purchase down the line for the time being.
With pullbacks in spending and investing, real estate projects will slow and the housing market is likely to cool off.
3. Government Spending Cuts Slow the Housing Market
When the government is unable to pay its bills, it will have to cut spending and benefits. This could lead to job losses and a decline in economic activity, as well as reduce funding for infrastructure projects and housing programs. All of this culminates in a slowdown in construction projects, more job instability, and tightening budgets that could be used for a down payment.
This is even more likely in areas that are more reliant on federal funding, such as those that house military bases, government offices, and federal programs. These towns are more likely to be economically affected by a government shutdown and spending cuts.
Contact Jeremy & Peg King to Assess what Breaching the Debt Ceiling May Mean for your Real Estate Plans
While the full extent of the impact is uncertain, breaching the debt ceiling can potentially disrupt the real estate market in the United States. Higher interest rates, decreased consumer confidence, market volatility, government spending cuts, and regional variations are all factors that may contribute to a slowdown in the real estate industry.
It is crucial for individuals, businesses, and policymakers to closely monitor the situation and adapt strategies accordingly to navigate the potential challenges that lie ahead.
If you’d like to learn more about what may affect your plans for buying or selling a home amidst a breach in the debt ceiling, contact Jeremy and Peg King. With over 5 decades of combined experience in the market, we’ve seen it all and can help you decide the best way forward to achieve your real estate goals.