“Home buyers and sellers finally have been adjusting to mortgage rates over 6% this spring, but a debt default could potentially raise borrowing costs even higher and send the market into a deep freeze,” said Jeff Tucker, senior economist at Zillow.
Zillow noted that the analysis projects what might happen in the unlikely worst-case scenario of a prolonged default and is not a prediction.
In the scenario of a default, Zillow projects that the combined impact of buyers and sellers pulling back would wipe nearly one-quarter of expected sales off the board in months. The biggest projected deficit would come in September, with an estimated 23% fewer existing home sales. This would be a blow to a market that is already experiencing limited inventory and rising prices.
Despite the dire predictions for the housing market, Zillow economists don’t expect home values to lose much ground, even with a default.
“Home values might not see a notable drop, but higher mortgage rates would severely impair affordability, for first-time buyers especially,” Tucker said.