As the U.S. national debt continues to climb—recently surpassing $35 trillion—and the ongoing government shutdown disrupts economic activity, the housing market is feeling the pressure from multiple fronts. While these may seem like large-scale national issues, both the soaring debt and federal shutdown have very real consequences for mortgage rates, homebuyers, and sellers.
The Link Between National Debt and Interest Rates
When the national debt increases, the federal government issues more Treasury bonds to finance its spending. To attract investors, these bonds must offer higher returns, which pushes up interest rates. Mortgage rates are closely tied to the yields on long-term Treasury bonds—particularly the 10-year Treasury note—so when yields rise, mortgage rates follow.
In essence, as the government borrows more, it competes with private borrowers for available capital. This “crowding out” effect drives borrowing costs higher for everyone—from businesses seeking loans to families applying for mortgages.
The Ripple Effect on Homebuyers
Higher mortgage rates mean higher monthly payments, making it more difficult for many Americans to afford a home. Even a modest rate increase can significantly reduce purchasing power. For instance, when mortgage rates rise from 6% to 7% on a $500,000 loan, monthly payments can jump by hundreds of dollars.
This reduced affordability pushes some buyers out of the market and forces others to scale back their expectations. Consequently, home sales slow, demand cools, and price growth moderates—especially in markets that saw major surges during the pandemic years.
How the Government Shutdown Is Hindering the Economy
Layered on top of the debt issue, the ongoing government shutdown is further straining the economy. Many federal workers are furloughed or unpaid, reducing consumer spending power. Economic data releases are delayed, creating uncertainty for investors and policymakers. Moreover, critical housing-related agencies such as the FHA, VA, and USDA experience operational slowdowns, delaying mortgage approvals and closing processes.
The shutdown also shakes consumer confidence. When uncertainty grows, both buyers and sellers tend to hesitate—stalling real estate transactions and investment decisions. This uncertainty can weigh on local housing markets and slow economic growth even further.
Long-Term Implications for the Housing Market
With both rising national debt and a government shutdown in play, the outlook for mortgage rates remains volatile. Persistent debt can keep long-term rates elevated, while prolonged government disruptions can weaken economic momentum. If inflation remains stubborn or fiscal instability worsens, borrowing costs could rise even higher, making homeownership less attainable for many Americans.
Ultimately, the combination of mounting national debt and the government shutdown serves as a reminder that macroeconomic policies have a direct impact on the housing market. Understanding these connections can help buyers, sellers, and homeowners make smarter financial decisions in uncertain times.
