Can U.S Debt Affect The Mortgage Market?
The mortgage industry has been through a lot recently; lots of foreclosure, declining home prices plus consumers are hesitant to buy new homes. Now there is something else that may worsen the situation; the looming federal debt in the U.S The whole economy would be adversely affected and that includes the housing market. That’s because a default will push up interest rates on every form of credit including mortgages. Experts say that interest rates can rise even one percent; a very high number. Brookfield Homes San Diego offers a large selection of stunning homes in San Diego County, California.
The majority of loans in the country are secured by Freddie Mac and Fannie Mae. When they guarantee securities, that guarantee is coming from the U.S. federal government. If the government misses it payments that decreases the value of these guarantees.
The way the system works is that when the value of the securities drop, then the securities market would immediately demand a much larger rate premium on new mortgage backed securities to compensate for the greater risk. The results will be sharply higher interest rates charged to new borrowers.
The repercussions will be felt for many years to come. U.S bond holders may also demand higher rates. This will ripple through all the markets and result in even higher interest rates. Of course, this, as well as problems in other markets resulting from such a move by bond holders will slow the growth of the economy, which needs all the help it can get in order to recover.
Short term lending markets will also feel effects. Treasuries and other government-backed debt are used as collateral for loans and the value of these securities will be plummeting because rating agencies will downgrade U.S. debt. As a result, many home buyers might not be able to put out the down payment required for home ownership.
The problem isn’t just deb; this is a very serious issue that will affect every market and industry in the country. It will affect the housing market including mortgage interest rates.
The real estate market has suffered quite a bit in recent years due to foreclosures and a declining economy. It looks like the national debt is another issue which will make it even more challenging.
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