U.S. Debt Default Would Cause Mortgage Rate Spike, Home Sales Slump

A default on the nation’s debt, if Congress is unable to raise the federal debt ceiling in coming weeks, would boost mortgage rates by at least two percentage points and cause a slump in home sales as costlier financing puts real estate beyond the reach of more Americans, according to Jeff Tucker, a Zillow senior economist.

While it’s still unlikely the federal government will fail to pay its bills, the chances have increased in recent weeks because of an ongoing stalemate in Congress, Moody’s Analytics said last week. The chance of a debt default now stands at 10%, up from a previous estimate of 5%, the research firm said.