There are many reasons why you can’t afford a mortgage and here are two. First is deficit spending by the current administration. Want to build a ballroom and “upgrade” the White House? Sure, just get the government to spend over $1 billion. Defense needs money for a useless war. No problem, get Congress to pay even though it needs to issue debt (Treasury bonds, bills, and notes) to do so. Want to increase the debt by $4 trillion over 10 years, pass the “One Big Beautiful Bill.”
Issuing new bonds to fund the debt means that more and more of your tax dollars go to paying interest on that debt, leaving little tax money for important issues such as infrastructure, FEMA and healthcare. The U.S. National debt is $40 trillion, which is nearly eight to nine times the annual federal revenue of $4.5 trillion dollars.
To service that debt, 33% of our tax revenue just goes to paying interest. If the current rate of spending continues, the cost for interest will climb to 45% of total tax revenue in 10 years. Deficit spending is out of control! That used to be the Republicans’ issue, but they no longer seem to care. There are only two ways out of this conundrum: raise taxes or cut spending or both. This is bad news for mortgage rates, as mortgage rates are tied to bond rates.
The second reason you can’t afford a mortgage is businesses need huge amounts of money to finance the AI build out of data centers. They are in competition for money with the government. Treasury debt can be freely bought and sold in the market. To sell these bonds in the market, businesses must offer a higher rate than the federal government. This competition for money means the debt rates go higher and the price of bonds goes lower.
If the largest holders of treasury debt, namely Japan, The United Kingdom and China, believe that their investment in bonds will go down significantly in the future, they will sell. A logical decision. When they sell, prices go down and yield, the interest rate, goes up.
So far, our government has always paid interest on it’s debt. However, in the future this may not be the case. The rising cost of servicing our increasing debt may mean that the government has no choice but to default on paying interest on the debt as there is no money available to pay interest. This doubt about the ability of our government to pay interest means that investors sell their bonds before they really tank. This suppresses the price of treasuries further and causes rates to rise. It is a vicious cycle that is very hard to control after it begins. It is a scenario that we hope will never happen, but who knows what the future holds.
These are certainly complicated issues. So what does this have to do with your inability to get a reasonable mortgage rate? High Treasury rates mean mortgage rates will continue to remain high.
Craig Fournier lives in Webster.