“This would be a scenario of a recession being triggered by a huge contraction in federal outlays,” said Tucker. This analysis projects what might happen in the event of a prolonged default, and it is not a prediction that a default will occur. In Zillow’s analysis, interest rates would spike, peaking at 8.4% and unemployment would surge, peaking at 8.3% from its current rate of 3.4%. What that means for the housing market is that the cost of borrowing would rise dramatically and sales would be dropping.” “This would reduce lending and credit availability throughout the financial system. “While we don’t expect a debt default to occur, if it did, it would have unprecedented effects on the financial system,” said Jeff Tucker, a senior economist at Zillow. If the United States defaults on its debts, we can do the past 12 months all over again. In other words, if you thought this past year of skyrocketing mortgage rates and plunging sales was miserable for the housing market, just wait, there’s more. There would be 700,000 fewer homes sold in the 18 months after July - that’s almost 12% of the 6 million sales currently expected during that span. Housing costs would spike by 22% with the rate for 30-year, fixed rate mortgages rising above 8%. But, if it were to happen - which could be as soon as June 1 without intervention - it would further crush an already wounded housing market, according to an analysis by Zillow. The United States has never defaulted on its debt, and it remains an unlikely outcome of the current standoff about raising the debt ceiling.
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