WASHINGTON (October 10, 2013) – Defaulting on the nation’s federal debt could be disastrous for the U.S. economy and catastrophic for the housing recovery, cautioned the National Association of Realtors® today in testimony before the Senate Committee on Banking, Housing and Urban Affairs.
NAR President Gary Thomas called on Congress to raise the debt limit in a timely manner to avoid the consequences of a severe and drawn-out recession that would rapidly erase recent gains in the still young housing recovery.
“A default would be devastating for homeowners whose largest asset would lose value and equity, for home buyers 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,” said Thomas, broker-owner of Evergreen Realty, in Villa Park, Calif. “As the leading advocate for housing issues, NAR is committed to protecting the value of homeownership from the avoidable and substantial harm that would be inflicted by Congress’s inaction to avert a default.”
Thomas said that even a 1 percent increase in mortgage rates could lead to 450,000 fewer home sales and price many middle-class Americans out of the housing market. For a borrower earning $60,000 and taking out a $200,000 mortgage, a 1 percentage point increase in interest rates would raise their monthly mortgage payment by 10 percent, a difference that could be costly to buyers and potentially disqualify them from many lending programs.
During his testimony, Thomas pointed to the significant financial market disruptions resulting from the debt ceiling impasse in 2011, which reduced consumer and business confidence and led to slower job growth. He urged Congress to raise the debt limit to help sustain the housing market rebound, which will keep the economy on its healthy path to recovery.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.
For more insight, learn what NAR's Chief Economist has to say about the potential effects of debt default on the real estate industry.