Rising Mortgage Rates Could Slam Economy if U.S. Defaults

Another potential risk to the U.S. economy, should the federal government default, is higher mortgage rates.

Without the debt ceiling hike, mortgage rates could rise to 8.4%, a 22% increase in average household mortgage payments and a slump in real estate sales, according to a report by property firm Zillow. If you borrow $500,000 at 6.3% interest, your monthly payment will be about $3,095, but if you borrow at 8.4%, it will exceed $3,800.

Geoff Tucker, senior economist at Ziro, said a U.S. default could “suffer a severe cooling in the market.”

Mortgage rates have been above 6% for months as the Fed tightens monetary policy to fight inflation. The real estate boom caused by the new coronavirus has receded, and both buyers and sellers are maintaining a wait-and-see attitude due to rising interest rates.

First-time buyers are finding it particularly difficult to buy, and higher interest rates will only make things worse, Tucker warned.

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