All it takes is a one-percentage point increase in mortgage interest rates because of a debt ceiling breach by the federal government for home sales to drop by up to 450,000 units, NAR President Gary Thomas testified yesterday at a Senate Banking Committee hearing.

“This is a bump in rates immediately because of the crisis, so it’s going to have a detrimental effect on the housing industry, which obviously has a detrimental effect on the overall economy,” he said.

He urged lawmakers to resolve differences and increase the debt ceiling because a slower real estate sector translates into a slower economy. He pointed to the debt ceiling impasse in 2011 as an instructive guide to the consequences of failing to act. In that situation, just the prospect of default forced up interest rates and slowed the economy, delaying the recovery from the recession by a year. “Financial market disruption, reduced consumer and business confidence, and slower job growth all happened when the debt limit was not increased until the very last minute,” he said.

Separately, NAR Chief Economist Lawrence Yun says even if the federal government decides to pay interest expenses after a debt ceiling breach, which would keep investors in U.S. Treasury bonds whole, other sectors of the economy would suffer. “Is it the case that some people who have been relying on Social Security checks no longer get those checks, or some of the military jets or tanks that have been purchased will not be purchased anymore?”

In the first of two videos below, NAR President Gary Thomas talks about his testimony before the Senate Banking Committee. In the second video, NAR Chief Economist Lawrence Yun talks about the consequences of a debt ceiling breach.

NAR President Gary Thomas in Senate testimony Oct. 10 said home sales would shrink by up to 450,000 units if interest rates rise one percentage point as a result of a debt ceiling breach.

NAR Chief Economist Lawrence Yun discusses the potential impact of a U.S. government debt ceiling breach on real estate with REALTOR® Magazine.

Source: NAR