After teetering on the precipice, we've avoided falling off the "fiscal cliff," and that's good news for the burgeoning housing recovery.
The last-minute bill passed by Congress leaves the mortgage interest tax deductions intact and extends for one year the Mortgage Forgiveness Debt Relief Act on loan modifications that passed in 2007. Those two decisions will allow the housing market to continue improving. In the past several months, we've seen home prices rising nationally and new construction rallying while mortgage rates have remained low. The Mortgage Forgiveness Debt Relief Act has helped reduce the number of foreclosed properties for sale.
But Congress still has to tackle the national debt, which hit its limit on Monday. President Barack Obama has already said he will not negotiate on the debt ceiling, while Republicans are pushing for spending cuts.
"While averting the fiscal cliff removes a lot of uncertainty that had been holding back the economy, the debt ceiling negotiations could be another headwind for the economy in the first quarter," says Greg McBride, CFA, Bankrate's senior financial analyst. And that could affect home sales. "Until consumers and businesses feel we're out of the woods from an economic standpoint, they're likely to remain hesitant in undertaking big-ticket purchases," he adds.
McBride predicts rates will move higher for a couple weeks now that the fiscal cliff has been averted, but are likely to move lower once again should the debt-ceiling negotiations become contentious.
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