Debt Deal Could Hurt Housing Market, Retirement

Deal Pending Regarding Nation's Debt Ceiling

The indecision in the nation's capital regarding the debt crisis could mean major ramifications for the local housing market and also for retirement portfolios.

For weeks, the crisis over the nation's debt ceiling has made news. In terms of the housing market, a potential debt deal could mean the "For Sale" signs could be up for much longer.

Michael Lea, the director of the Corky McMillan Center for Real Estate, said a short-term debt deal could mean trouble for people looking for homes.

"Interest rates would rise on government bonds generally, and mortgage rates more specifically," said Lea. "That affects consumer confidence, which has a spillover effect on the housing market."

The average 30-year fixed mortgage rate was 4.52 percent last week. A rise in interest rates could hurt, but the confidence issue that could truly devastate the real estate market.

"If you're not confident about where the economy is going... you're not going to be confident about buying a house," said Lea.

Bob Kevane, the president of the San Diego Realtors Association, is optimistic that a debt deal will not raise interest rates.

"I don't see rates rising for a very long time," said Kevane. "Until you see the unemployment rate go down to 6.7 percent, then you'll see rates start to rise a little."

Kevane said the market has been relatively flat the last two years, with the county selling around 28,000 homes and condos. Kevane said tougher loan requirements are a bigger obstacle to homebuyers.

"If you don't qualify for the loan, even if you want to buy the house, you don't get to buy the house," he said.

Financial adviser Dennis Brewster said the longer a deal is not made, the bigger the hit will be to personal finances.

"You'd definitely see a reaction in the markets that would force interest rates higher, hurt bond prices [and] hurt the bond side of your 401k," said Brewster. "Equity markets typically overreact in the short run."

Brewster said a deal could stabilize 401ks, but if the country loses its AAA credit rating, consumers' pockets will still suffer.

"That would mean the cost of borrowing would be higher, interest rates would be higher and that's going to put pressure on bond prices in the short run," he said.

Lea agrees.

"The closer we get to downgrade and default, the less confidence in the immediate to long-term the rest of the world is going to have in the U.S.," said Lea.

Lea said the country's debt debate will have a global impact that could leave the U.S. reeling.

"We risk our economic prominence as a result of not being able to get this right," he said.

However, Brewster said it's not too late for the country's financial problem to change.

"I don't think there's any question that we can get back on track and work our way back," he said.

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