Austin real estate holds back as the debt ceiling crisis triggers interest rate hikes

The closer the US gets to default without a debt ceiling deal, the more volatility Americans will feel in everyday transactions.

Today, Congressman Lloyd Doggett sent an email to constituents saying 213 Democrats have signed a petition to take action that would extend the debt limit without new limits. He writes that Dems did the same thing under former President Donald Trump, but this time they need five Republican votes to do it.

In Austin — the uncertainty means home buyers and sellers are hesitating. Austin's housing market has cooled considerably from the hot market of 2021 and 2022, and mortgage rates have already risen on uncertainty over the debt ceiling in the past week.

While homes are on the market in the Austin metro area a bit more these days, mortgage rates are ticking over even though the US has yet to avoid a default.

Claire Lozzi is the Housing Economist for the Austin Board of Realtors.

"We can probably expect less volatility in the market over the next few weeks, probably. It very much depends on the timing when the decision is reached."

The latest data from ABoR show that the median price of a house is about $466, a significant decrease from the price a year ago - $521. Higher interest rates – set by the Fed to fight inflation – are a big part of why demand has slowed.

"We're in the ever-popular spring season, so we're seeing the seasonal increase, but it's much milder this year with much higher rates," said Lucy.

In Hato, Julie Dejima bought a house when the market was hot, and in many ways she got lucky.

"It was just in the right place at the right time." But she is glad that she is not subject to the uncertainty that is troubling the markets. "I think a lot of families won't be able to buy houses and it started last year, and it's only going to get worse," she said.

"Buyers panicked, almost like the sky was falling and what the rates did was erode purchasing power," real estate investor Jesse Brader told CBS Austin.

His business partner is Zach Shaforst, a real estate lender. "I could characterize it more as a correction to a relative average," he said of the current market, compared to that of the last two years.

Between falling housing prices and rising interest rates, some home sellers may find themselves underwater - a word we haven't heard much since the Great Recession.

“Is it possible for people in difficult situations where you have to go through? Definitely. Like with a divorce or something like that," said Forrest.

The White House says that if the US defaults, up to 8 million people could lose their jobs along with other economic impacts. While Austin real estate is currently slowing, with no deal on the debt ceiling, the worst-case scenario means homebuyers will have to wait.

"Whether they consider it or not, they won't be approved for a mortgage if they don't have a job," Brader said.

Even if you're not looking for a mortgage, defaulting can send your credit card rates skyrocketing, too.