The ongoing government shutdown is hindering the economy in numerous ways. Among the most notable: The nation's debt is ballooning. The Treasury Department reported Oct. 22 that the national debt has exceeded $38 trillion — a previously unattained level of federal indebtedness. While that may seem like a problem outside the scope of your daily life, it could affect the housing market and mortgage rates.
We're moving farther from the world of 4% mortgages
While mortgage rates have been falling lately, if you're still hoping for rates to drop drastically, the likelihood is fading fast.
"We're not going back to the world of 3% mortgage rates, pretty unlikely to get back to the world of 4% mortgage rates," Jeff Tucker, principal economist for Windermere Real Estate in Seattle, told Yahoo Finance in a phone interview. "So instead, we're going to be in a world of higher interest rates for the medium- to long-term."
That's because the increasing U.S. debt "will require a higher yield on the debt to keep financing it, to keep lending to the government essentially," he said. "The most relevant consequence of the higher national debt for the housing market, in particular, is higher borrowing costs in the medium- to long-term."
The national debt is not a short-term issue
The national debt is an issue that could affect the housing market and mortgage rates for decades.
An analysis by the Budget Lab at Yale reported that the increasing national debt will move the 10-year Treasury yield 1.4 percentage points higher by 2054. With the traditional spread in Treasury yields and mortgage rates of about 2 percentage points, that could mean home loan rates close to 7.5%.
The Bipartisan Policy Center, a nonprofit think tank, believes the rapidly rising national debt is "bad news for renters, homeowners, and developers alike."
"Debt-driven high interest rates can lead to inflation, which may cause developers to scrap their blueprints and contribute to housing scarcity. It also means that families are left with fewer choices and higher mortgages," BPC wrote in a June report.
A world of higher interest rates
Windermere's Tucker said the housing market will need to adjust to a new reality.
"Nobody should be buying a home, counting on a plan to refinance down their interest rate by two points in a few years because there's really no guarantee that will happen, and in fact, it looks unlikely that will be available," he said. "Mortgage borrowers should come to terms with being in a world of higher interest rates."
If you're looking to buy a house, maximize your creditworthiness to earn the lowest home loan interest rate you can. Shopping with multiple mortgage lenders can also improve your mortgage rate by a half point or more, according to a new report from Realtor.com.
For homeowners sitting on a large amount of home equity, a refinance might not be the best option if you already have a low mortgage rate. However, a home equity line of credit can let you tap that value — and HELOC rates have been falling recently.
Laura Grace Tarpley edited this article. CNBC