Government default & the housing recovery

Inman news released an article today about the effects a possible government default would have on the housing recovery. Here at Progressive Real Estate Investments, LLC we agree with Gary Thomas in that a government default would have negative effects on the housing recovery. We hope that congress can find a way to avoid a default.

‘In testimony before the Senate Committee on Banking, Housing and Urban Affairs, NAR President Gary Thomas warned that if Congress did not raise the debt limit “in a timely manner” the result could be a severe recession that would erase the housing market’s recent gains in home prices, home sales and residential construction.

“(T)he momentum of the housing recovery will be in serious jeopardy if Congress is unable to move past unnecessary political brinkmanship over raising the debt limit. A default, or even the perceived threat of a default, could result in a harsh and long-lasting recession, which may be even more severe than the previous economic downturn,” Thomas said.

A default would likely cause U.S. Treasury rates to rise and mortgage rates along with them, he said, noting that even a 1 percent increase in mortgage rates could lead to 350,000 to 450,000 fewer home sales. That kind of increase would price out or disqualify many potential homebuyers by increasing their monthly mortgage payment and debt-to-income ratio, he added.

“A default would be devastating for homeowners whose largest asset would lose value and equity, for homebuyers who would see dramatic increases in interest rates and tighter credit standards, and for entire communities that are still grappling from the impact of the financial meltdown,” Thomas said in a statement.

He noted that 2011′s debt ceiling impasse diminished consumer and business confidence and slowed job growth, and this time around could be worse due to the government shutdown, which began Oct. 1.