What Happens to Housing if the Debt Ceiling Isn't Raised?

I don't like to get political on this blog - I have my own opinions, others have their own as well, and I don't find it particularly useful to the goal of this blog, which is to present informative information to readers interested in the housing market, housing policy, and (to a lesser extent) mortgage lending.

But with all the hullabaloo in Washington DC surrounding the debt ceiling, I think it is useful to explore what might happen to the housing and lending market if the debt ceiling isn't raised.  As of this post, there are about five days remaining before America exhausts it's ability to borrow money and continue to meet it's already-appropriated obligations.

1.  Interest rates will surely rise.  If investors view the US economy as a riskier investment, they will expect higher yields for their money.  This scenario could very likely lead to an increase in mortgage rates as well.  An increase of just one percentage point on a mortgage will decrease the amount of money buyer's can borrow.  It will possibly price some buyers out of the market, which will exacerbate an already weak housing market.

2.  The small gains we have seen recently in new construction could be erased.  When the housing market burst in 2006/2007, new construction plummeted as well.  We have seen recent upticks in the number of new housing starts, and failure to raise the debt ceiling will likely cause developers to postpone new projects as they find financing harder and more expensive to come by.  This also puts construction workers out of a job, just when they need the jobs the most.

3.  Home prices could very likely fall.  We have seen a dramatic stabilization in home prices in the last two years, but if buyer's are unable to borrow as much as they previously were, fewer buyers will be in the market to purchase existing homes.  The laws of supply and demand tell us that if demand falls, so too will prices.

This is just the beginning of what could happen.  The housing market is fragile as it is, and an American default could very easily send the housing market back into the very doldrums it is trying to recover from.  By no means do I mean to fear-monger or frighten my readers, but the reality is that an American default has never happened before, and as a result it is difficult to predict what the fallout from such a scenario might be. 

Either way, the best we can hope for is for our elected officials to cease the current game of chicken and find some common ground - if only for the American people's sake. 

Why Minneapolis?

Minneapolis is constantly rated as one of the best metropolitan areas in the United States to live in.  Buy why?  What makes Minneapolis so desirable to potential residents?  I'm here to share my opinion, feel free to weigh in/add/comment!

1)  The Schools
Among metropolitan areas, Minneapolis is one of the most educated.  Minneapolis and St. Paul are home to a number of world renowned institutions, including the University of Minnesota, St. Thomas, Hamline University, and a number of private high schools and colleges. 

2)  The Jobs
Minneapolis and St. Paul are home to a number of Fortune 500 companies, including Best Buy, Target, General Mills, 3M, etc...  Due to the highly educated workforce, companies view Minneapolis and St. Paul as great places to headquarter a company.  The Twin Cities also have a thriving small business community (including the one I work for!)

3)  The Things to Do
There is always something to do here.  Whether its the State Fair, the Renaissance Festival, Valley Fair, numerous farmers markets, the Walker Art Center, the Winter Carnival, etc... there are plenty of opportunities to get out and have fun.