Although I try to keep it off the blog, folks around the office know me as an inveterate real-estate bore. Last year, I tracked mortgage rates with the intensity that other guys reserve for their fantasy football teams, and refinanced not once, but twice. Sadly, this isn't some passing phase. It's been a fixation of mine since back when housing was driving the economy, rather than dragging it down.
I mention this because I've become increasingly puzzled why more people aren't alarmed about the possibility of a debt-ceiling default and the effect that even a whiff of one should have on mortgage rates. If the U.S. were to default on its debt, interest rates would jump. And if rates were to jump, the effect on an already weak housing sector would be calamitous. That, in turn, would harm the broader economy--maybe enough to tilt a weak recovery back into recession. But right now that's not happening. The reason is that the weakening economic outlook has prompted a lot of people to buy bonds, driving up their price and driving down interest rates. Mortgage rates are currently near their lows for the year. It's not a hard and fast rule, but mortgage rates often track the yield for the 10-year Treasury bond. Here's how that's been moving for the last three months:
So obviously, the bond market isn't particularly concerned about a debt ceiling default. Or perhaps better to say it's paying more attention to weak economic forecasts than the possibility of default. As somebody who follows Congress pretty closely, that doesn't make a lot of sense to me. Sure, both parties are paying lip service to the idea that we "must" raise the debt ceiling. But at the same time they're hardening their positions and making a deal more difficult. That seems worrisome, since it pretty much takes a "forcing mechanism," as we call it in Washington, for Congress to make any difficult decision these days.