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‘No’ on Debt Ceiling Would Clobber Real Estate

By Robert Freedman, Senior Editor, REALTOR® Magazine

The upcoming vote in Congress to increase the federal debt ceiling is one of those procedural matters that takes on a new importance in this age of high budget deficits. Ordinarily, members of Congress would vote to increase the debt ceiling without too much controversy, which isn’t to say lawmakers enjoy casting their votes. No one likes to increase the amount of money the United States can borrow. But in the previous hundred or so votes since the early 1900s, when Congress first raised the debt ceiling, this was a painful but necessary bipartisan move. This time, however, some lawmakers are saying they won’t vote to raise the debt ceiling.

Sen. Mark Kirk (R-Ill.), for example, told reporters this past weekend that he was keeping his options open to see what budget cuts would be made part of the deal. “I will vote no on that debt ceiling unless we have comprehensive, dramatic, effective, and broad-based cuts to federal spending,” he told reporters. His quote was included in the April 25 Washington Post.

Whatever your view on the federal budget deficit and the procedural tactic of attaching budget cuts to the debt ceiling vote (it has in years past been a clean vote with no cuts attached), analysts and lawmakers agree that the impact of failing to increase the debt ceiling will be unprecedented, on the economy and particularly on real estate, which is so interest-rate sensitive.

That’s because failure to increase the ceiling will send the global economy into turmoil: for the first time, the United States will default on its bonds. “Once we default, then the United States is no longer the safe haven for cash anywhere in the world,” says NAR Tax Counsel Linda Goold. For it to attract investment to finance its debt in this new world order, the federal government will have to raise interest rates, possibly dramatically. That will hurt home ownership. But, more importantly, the ability of the United States to resume its position as the world’s financial safe-haven will be compromised, maybe for good.

Against this background the upcoming vote on the debt ceiling becomes crucial for real estate, even though the vote itself has nothing to do with real estate and REALTORS® in the past have not lobbied on the matter. The U.S. Treasury Department estimates we have about two weeks before we hit the debt ceiling, After that, the government can make administrative changes to keep the government solvent until about the first week of July. So, ideally, Congress will act to let the government take on more debt in the next two weeks or so, before the situation becomes dire.

You can learn more about the matter in the video above with NAR Tax Counsel Linda Goold.

Robert Freedman

Robert Freedman is manager of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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Comments
  1. the solution is the problem – an rtc should be enacted to provide the clean slate necessary for the banks to offer financing and desire for mortgages- rather than you have made them their own judge and jury and prop them up despite the fact that their are still insolvent- so how can you worry about a problem caused by another without removing the source- g

  2. We either pay the piper now or we pay the piper more later. We will destroy future generations by continuing to go into more debt. It has to stop somewhere or this country will go bust anyway. The reason we are here now is because we failed to make the tough decisions before. The tough decisions will only end when we do what we have to do. I do not want to see real estate hurt any more than it has been but somebody has to have the guts to stop this fiasco now. The problem will only get worse if we continue bailing the world out of its problems but refuse to stand up to our own. We need a new leader who has the courage & support to turn this behemoth around & move in the direction necessary to bring us back to the prosperity we have always known. I know it will be painful but I also believe it is necessary & it can be done. Where is the leadership we need? Who will make this happen before it is too late?

  3. Larry Lewis

    I agree with most people that the budget issues need to be addressed. However not raising the debt ceiling isn’t the way to correct the current budget issues. Raising the debt ceiling (as it has been done many times in past administations) will allow the government to pay bills that they have already incurred. Defaulting on our obligations will only make matters worse, both in the short and long term.

  4. I agree, the Republicans are trying to use a mess they helped create to get what they want. Not good sportsmanship. We need to trim the government, and ourselves. The youth are learning a different way. Everyone has to work together to pull through. We do not need fights and bullying. I truly believe the first cuts made should be on congress, they should not be able to vote themselves out of laws and taxes.

  5. Raise the debt ceiling. If we are going to make cuts as part of the package; let’s repeal the Bush Tax Cuts; Let’s repeal the special loan deal that Big Sugar producers get; Let’s cut all Agriculture subsidies of over $1 million per recipient (corporations included); Let’s end the incentives for Oil Drilling; Let’s end the lower tax rates for Hedge Funds; Let’s allow Medicare Part D ( that’s the expensive part) to negotiate group rates like WalMart and Target did. Let’s end the sweetheart pension and medical programs that Congress voted for themselves. Let’s raise the $130,000 cutoff for Social Security deductions.
    Clinton left the Whitehouse with a surplus in the U.S. Treasury. Now thru 2 unfunded wars (remember they were “off-budget”) and unsustainable Tax Cuts we find ourselves in this mess. And the Best that some Ideologues can come up with is cutting Social Programs they don’t like? Explain how that is going to balance a Budget. It stands about the same chance as Tax Cuts creating Jobs. (remember we tried that during the Bush Years).

  6. What a load of crap. The thought that we can’t succeed without our government going even further in debt. How bout cutting spending til it hurts. Hurt will eventually have to happen. If I’m in debt at my house it has to hurt to fix it.

  7. It’s unfortunate that if the debt ceiling is not raised that the solution the government will fall on is to stop paying interest on debts. Why not cut back on operations in Libya and elsewhere and cut back on entitlements? Why is defaulting on our debt the go-to result?

  8. Lloyd Morton

    No one seriously believes the debt ceiling will not be raised. Under your proposed scenario, we may as well do away with it if it is a rubber stamp, Now is the time to make changes to our spending habits. A discussion with consequenses gets things done. Why capitulate to the spending side? Are you in favor of inflating our housing problem away? There is no easy fix to the situation and more debt will eventually drive rates up and force prices down even more. Remember the 80′s?

  9. John Bahn

    NOT raising the debt ceiling will “devastate” the real estate market??? Nonsense! I don’t get where you want us to be lockstep on such matters. Enough is enough…our country is reeling in debt, homes are in record foreclosure (shades of early 1990′s) and instead of worrying about lining our pockets it’s time to get back to basics with getting the entire country back on track! Markets (including real estate) always make adjustments to conditions that are beyond our control…increase our national debt is obscene and unnecessary!

  10. I believe it is time to do what is best for the country not our business! Since the entire world; except, perhaps, China, is in financial turmoil, I am AGAINST THE RAISING OF THE DEBT CEILING! We need to learn what it is to budget like we have done in our homes! Our country has overspent and mismanaged!

  11. We better fix the brokenness of government before we take on more debt. Our government started as “public servants” and it seems we turned it around for the people to serve the government. Take away the “special” health care, pensions, and place term limits on the people who “serve.” Furthermore, we have seen so many collecting welfare who do not deserve it, illegals getting free everything, and people collecting more unemployment after it runs out since they have gotten used to sitting back and collecting. Perhaps after we do this our country will have less debt and the dollars will be spent on the taxpayers not the “servants.” There is a very old saying, give a person a fish and he will continue to take fish from others, teach him to fish and he will eat. Let them fish!

  12. Dick Parins

    There are plenty of things that can be done to resolve the debt ceiling issue but anyone that believes the claims that we can cut taxes and cut spending and still not raise the debt ceiling should go back to second grade math class. It does not add up. Scroll up and re-read Robert Malsch’s response on this issue. He nails it. We cannot eliminate the deficit without everyone, including the very wealthy and the huge corporations and the defense department kicking in. To try to do it strictly by cutting programs for the poor and elderly is unnecessary but more to the point it will not work. Get back to me when Exxon is paying the same tax rate that I am!

  13. Becky Engel

    With all due respect, the real estate industry along with most industries will ‘get hit’ without raising the debt ceiling. However, do we want to have a meaningful recovery or are we going to be part of the problem of ‘kicking the can down the road’ one more time? We have all been living beyond our means and now it’s time to pay the piper. We all need to tighten our belts and deal with this NOW not later. I suggest that things will only get worse if we allow Congress to raise the debt ceiling. Exhorbitant spending must stop NOW. What would you do if your family had a debt problem? Keep spending and borrowing money? No, you wouldn’t. You would suck it up and prioritize. We can no longer afford to spend money on ‘cowboy poetry festivals’ and electronic choreography for universities. I know the liberals claim that these things are a drop in the bucket but we have to start somewhere if we are going to fix what is wrong. If we don’t, we will not have an America left. At least not one that we recognize. Stop being one of those organizations that lobbies for their own selfish interest and says ‘cut spending’ but not at MY expense. Suck it up.

  14. Barbara Griffin

    Sorry, I don’t believe it. We are not so stupid. This is crazy economics to raise when we don’t have enough to pay our debts.

  15. sandiand3

    The idea that the govt must default on debts if the debt ceiling is raised is hogwash. The govt takes in enough in taxes to cover debt, payments to social security, the military, medicare with surplus. The govt will have to DECIDE whom to pay. Therein lies the problem as we have never asked the govt to spend within it’s means. Much easier to continue taking money from those 50% who pay taxes, better yet, those top earners who in someone’s opinion “make too much”.

    Better to steal from the wealthy than cut wasteful spending and govt. bloat.

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