Kimberly and I have been fielding calls all week regarding what will happen to interest rates with regards to the debt ceiling/debt reduction outcomes. We thought we’d do a quick summary of the various possibilities. Realize this is a simplistic view of a huge and important issue, but we want to keep it short and concise. If you’d like to discuss this further, give us a call.
- No Resolution by Tuesday Aug. 2. No new treasury debt can be issued. In other words, the credit card is maxed out…we can’t buy anything new on credit.
- Net result of this: Mortgage interest rates will undoubtedly rise. If you have a buyer that is floating their interest rate at this point, we would encourage them to lock it in!
- If a deal is passed. This will strengthen the value of US debt, which is good for mortgage rates. Additionally, there will be less government spending which should reduce inflation fears, which is also good for mortgage rates.
- If a ‘small’ deal is passed: There would be concerns of the US debt being ‘down graded’. This is bad for mortgage rates (more risk = higher rates)
- If a ‘big’ deal is passed: This is generally defined as $4 trillion+ cuts. This would be good for mortgage rates as it assures the market as it again strengthens the value of our US debt.
Want some good news? Initial jobless claims broke below the physiologically important barrier of 400,000 for the first time in 16 weeks. Let us know if we can be of help on a transaction. We can do a quick close if needed!
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