conceptual illustration of deficit

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Put the Deficit Back on the Radar 

If Washington doesn’t get a handle on the ballooning budget deficit, the impact on the economy and homeownership could be devastating.

November - December

Washington is producing intense drama these days. Tempers are flaring and name-calling is unprecedented. Meanwhile, one area of potential agreement is flying almost under the radar: the skyrocketing deficit. The federal deficit is closing in on $1 trillion in 2019 and could surpass it in 2020. The total -federal debt level, adding together all past deficits, will reach 100% of the gross domestic product in a few years, well above the 60% that many economists consider to be manageable. These projections assume good economic growth; in a recession, the deficit balloons even further.

For now, the good news is that the housing market recovery will help the economy grow in 2020 as increased homebuilding is addressing the housing shortage. But deficits, in the long run, are a threat: Interest payments alone could surpass defense spending within a decade. And mortgage rates could spike out of control.

If younger people ask their parents or grandparents about the interest rate on their first mortgage, they’ll be shocked to learn they were as high as 18%. How’s that possible? They seem like the rates charged by gangsters in back alleys?

When the government borrows, someone has to lend. U.S. Treasury bond buyers, in effect, become lenders. Buyers may be citizens, financial institutions, or foreign governments. With deficits expanding, the need for bond buyers will grow. If there -aren’t enough buyers, the government will need to offer higher interest rates, which will increase all borrowing rates. If the Federal Reserve gets involved, buying T-bonds with newly printed money, inflation could ignite.

The budget deficit is something like climate change. Today appears to be about the same as yesterday. But if it’s not addressed, something bad will likely happen at an unknown, future date. When mortgage rates rise to unacceptable levels, will the American dream of homeownership be lost?

Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Yun oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.3 million REALTOR® members.

Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal Forecasting Survey. He also participates in the Industrial Economists Discussion Group at the Joint Center for Housing Studies of Harvard University. He appears regularly on financial news outlets, is a frequent speaker at real estate conferences throughout the United States, and has testified before Congress. Dr. Yun has appeared as a guest on CSPAN’s Washington Journal and is a regular guest columnist on the Forbes website and The Hill, an “inside the beltway” publication on public affairs.

Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.