Mortgage Rates to Skyrocket on Economic Budget Failure

By Mike Colpitts

Failures by Congress and President Barack Obama to reach a deal on the U.S. economic budget is likely to trigger a massive hike to higher rates skyrocket mortgage interest rates, sending rates up at least 1 to 2½% within just a few short days following an impasse. The sudden rise in rates would essentially halt home sales and send any chance of a recovery in the housing market out the window.

The blunt analysis on the Congressional impasse by Housing Predictor analysts is necessary in these trying economic times so Americans can realize just how massive the impact of Congress’ failures would be on the nation. The legislative stalemate would also trigger a massive sell-off on Wall Street, and would likely send the market below the lows hit during the peak of the financial crisis almost three years ago.

Breaking the Congressional partisan haggling over the budget is critical for world financial markets, Wall Street and Washington, D.C. politicians who are losing any sort or respect they may have left with voters to do their jobs in the ailing days of the hurting U.S. economy.

Unemployment levels haven’t been as high as they are, averaging 9.5% in the U.S. for as long as they have been in the nation since the Great Depression.

Economic stress in many sectors of the economy is being demonstrated by erratic patterns on Wall Street. Treasuries rose above 3% in late trading last week as interest rates barely budged. Investors are purchasing fewer Treasury bonds as a result of weakening confidence in Treasuries should the U.S. government default on the nation’s debt.

The response to weekend failures by Congress to reach an agreement on the debt limit sent stocks lower on Wall Street in Monday trading. The dollar lost more ground in world currency markets, exacerbating the situation.

Now Hiring

President Obama set a deadline for August 2nd to reach an agreement before government checks would be stopped. Housing Predictor forecast the foreclosure crisis nearly a year before other real estate research firms. But in the event of a government shutdown the economy analysts contend could be in a freefall. The Treasury Department said a deal must be reached by August 2 nd to not risk meeting its financial obligations like paying the military, interest payments on the nation’s debt and Social Security.

However, should investors in coming days lose confidence in Treasuries as a result of the impasse more are likely to sell bonds driving down their values, which would send interest rates higher, despite what the Fed does to counteract the situation. Even rates moving a little higher like a quarter of one-percent would result in a further slowdown in home sales, which have already been weaker than usual during the summer, typically the busiest time of the year for sales.

At the height of the financial crisis long lines formed at Contrywide Mortgage outlets in Los Angles suburbs as investors made a run on banking centers. Other banks have suffered from similar runs, despite the FDIC insuring account losses up to $250,000 per account. Panics like the one on Wall Street when the market dropped hundreds of points in 20 minutes due to computer trading errors could send the New York Stock Exchange to new modern day lows.

Financial panics materialize for different reasons at different times, but the U.S. economy is ripe for a major panic to develop as investors on Wall Street and others worry over the state of the U.S.economy. More than 70% of all stocks traded on Wall Street are currently traded with the use of sophisticated computer programs as short term fast trades, providing less stability for the market and other securities like Treasuries.