If the US Defaults, Real Estate Shock... "With 8% Interest Rates, Monthly Repayments Snowball"

Concerns Over Real Estate Shock if Debt Ceiling Negotiations Fail

There is a forecast that if the US debt ceiling negotiations fail, mortgage rates could soar above 8%, causing a significant shock to the real estate market.

On the 13th, Bloomberg News introduced a report from real estate specialist Zillow, stating that if the US defaults on its debt, the real estate market will rapidly cool down.

According to Zillow's estimates, if the debt ceiling increase currently being negotiated between the White House and the Republicans is not achieved, mortgage rates are expected to rise to 8.4%. With the sharp increase in rates, the burden of interest repayments will intensify, and the monthly principal and interest repayment costs are expected to increase by 22%.

For example, for a $500,000 (approximately 670 million KRW) mortgage loan with a 30-year fixed rate, the monthly repayment amount is $3,095 (about 4.1 million KRW) when the interest rate is 6.3%. However, if the rate rises to 8.4%, the monthly repayment will increase to $3,800 (about 5.1 million KRW). This means the monthly loan repayment would suddenly increase by about 1 million KRW in Korean won.

Mortgage rates in the US have already surpassed 6%. This is the result of the Federal Reserve's tightening policy that has continued for over a year since March last year to curb inflation. As a result, the real estate market has rapidly cooled, and the repayment burden on homebuyers with increased borrowing costs has also intensified. If the possibility of a US default becomes a reality, it will be difficult for both the financial and real estate markets to avoid aftershocks.

Jeff Tucker, Zillow's chief economist, expressed concern, saying, "A US default would freeze the market," and added, "Additional rate hikes could worsen the situation as new buyers struggle to enter the market."

Earlier, the US exhausted its entire debt ceiling of $31.4 trillion (approximately 41,900 trillion KRW) on January 31. The Treasury Department has been holding on with special measures, but even those are reaching their limits. Treasury Secretary Janet Yellen has urged an increase in the debt ceiling, with the X-day for default set for the 1st of next month.

Recently, President Joe Biden met with House Speaker Kevin McCarthy and other congressional leaders but failed to find a breakthrough. They plan to meet again early next week to continue debt ceiling negotiations.

This content was produced with the assistance of AI translation services.