Unless you have been under a rock (on purpose or otherwise), you are likely aware of a little upcoming August 2nd deadline that could have large implications for the country. UrbanTurf reached out to some folks who know the housing and mortgage markets pretty well to see how a lack of a debt ceiling resolution would affect the area housing market.
In short, the people that we spoke to noted that the effects on the housing market will not be solely local, but will affect the entire country. And the most immediate impact will likely be on interest rates.
“The conventional wisdom is that interest rates are going to shoot up,” Bill Slosberg of Falls Church-based Acacia Federal Savings Bank told UrbanTurf. “However, there is another school of thought that rates will fall because people will take their money out of the stock market and put it in Treasuries.” Slosberg noted that if there is a greater demand for Treasuries, then market forces will push rates down. “It could be a boon to the market in the coming months if rates drop and then a number of home buyers go out in order to try and take advantage of the low rates as well as beat the October 1st deadline when the government lowers loan limits.”
Miller Samuel’s Jonathan Miller agreed with the possibility that interest rates could drop in the short term if people take their money out of the stock market, but in the longer term he sees interest rates rising.
“If there is no resolution, the effect on the housing market would be twofold,” Miller explained. “The first and more specific impact would be on interest rates. But the indecision and lack of direction at the federal level creates a sense of caution that causes potential home buyers to sit and wait. We are at a delicate state in the housing market and one of the worst things that could happen is for people to pause.”
Miller conceded that DC is one of the better markets relative to other major metro areas, so the impact of higher interest rates and borrowing costs may be felt less than other areas. However, given the health of the market in DC, he couldn’t help but find some irony in the current situation.
“In Manhattan you have Wall Street, and in DC you have Capitol Hill. In both places the housing markets are faring better than the rest of the country,” Miller said. “And these are the two focal points of where critical decisions are being made. It is a bitter irony.”
While most analysts feel that some sort of deal will be worked out, the prospect of a downgrade to the country’s historically stellar credit rating is perhaps what should be most worrisome to those watching the housing market. From a recent column by Andrew Ross Sorkin of The New York Times:
“The question is how rating agencies will view the country’s creditworthiness, even if a deal is reached. To some extent, that’s why lawmakers are wrangling over whether to pursue a stop-gap measure for the next couple of months versus a long-term plan. Standard & Poor’s threatened that it would cut the United States rating if lawmakers didn’t come up with a “credible” solution…if the country were to lose its vaunted rating, the federal government, companies, homeowners and innumerable others would see their costs skyrocket.”
This article originally published at https://dc.urbanturf.com/articles/blog/how_debt_ceiling_stalemate_could_affect_dc_housing_market/3868.
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