How US Mortgage Rates Are Impacted by the Eurozone Economy
Although Greece seems far away — and far from involved in the mortgage and housing market challenges faced in the U.S., the fact is that our economies are linked.
Simply put, Greece is bankrupt, which means it can’t pay its debts, including those made by foreign governments and banks.
Although the direct exposure of U.S. banks to bad debt in Greece is not huge, when you combine Greece with four other European countries facing the same challenges (Portugal, Italy, Ireland and Spain — together with Greece, they are referred to as the PIIGS), you have a much more daunting problem.
Banks with defaulting loans face a decreased liquidity challenge — as protecting and preserving existing capital becomes more of a priority. Last week saw several of the Big Five banks calling a halt to three and four-year fixed rate specials due to “global economic concerns.” On the verge of recovering from the last bout of bad loans (our own mortgage crisis), a looming debt crisis — even if it occurs thousands of miles away — is not what our economy needs.
In the coming weeks and months, the Euro Zone’s response to the crisis in Greece, and in the other PIIGS, will trickle down with some force on our economy, impacting loans and mortgages and the housing market recovery.