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• The US debt could eventually “break” markets if it keeps growing at this pace, Joao Gomes warned.
• The Wharton finance professor said he worried the debt-to-GDP ratio would double in the next 20 years.
• The US may no longer be able to rely on countries like China and Japan to buy up Treasurys, he added.

The US’s soaring debt threatens to break something in the market if the government doesn’t pull back its pace of spending soon, according to a Wharton finance professor.

Speaking to CNBC on Thursday, Wharton’s Joao Gomes warned of future trouble stemming from the US’s $34 trillion debt load, which experts have been watching grow at an alarming clip. Given the government’s current pace of spending, the federal debt is growing by around $1 trillion every 100 days, Bank of America analysts said this month. 

Public debt accounted for 121% of GDP at the end of 2023, according to data from the US Office of Management and Budget.

“What I’m really worried about is it’s going to double its share of GDP in 20 years. That I can’t see as us being able to afford,” Gomes said. 

While the US can afford its debt now, the growing pile could spell trouble years down the line, Gomes said, as investors could grow worried over the rising cost of servicing that debt and dial back holdings of US Treasurys.  

That could mean the US may one day no longer be able to rely on countries like China and Japan to buy up debt securities that help fund the government. 

“At some point, markets will break,” Gomes said. 

US debt costs could notch a new record by 2025, Goldman Sachs estimated, with total interest payments on the debt potentially amounting to $10.6 trillion over the next decade, per a separate analysis from the Peter G. Peterson Foundation. 

Other market commentators have sounded the alarm on the growing national debt balance as the pace of government spending shows no sign of slowing. Billionaire investor Ray Dalio predicted last year the US would eventually see a debt crisis, which could push US growth to near-zero. 

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• Fewer people are sitting on their mortgages as they adjust to higher rates, according to Redfin.
• New listings jumped close to 15% in February, the biggest year-over-year increase since 2021.
• Still, this isn’t translating to lower prices, which climbed 6.6% on an annual basis.

US home-sellers are finally getting accustomed to higher mortgage rates. That’s driving momentum in housing-supply growth and helping alleviate an inventory shortage, Redfin wrote in a new report.

New listings surged 14.8% on an annual basis in February, marking the highest year-over-year gain since May 2021. Month-to-month listings rose 3.8%, hitting the highest levels since September 2022.

“The housing market is nothing like it was two years ago during the pandemic homebuying frenzy, but it’s better than it was last year. It’s coming back,” Redfin premier real estate agent David Palmer said in the report. “Sellers who were on the fence in 2023 are now listing. They’re more used to elevated rates now.”

Mortgage rates have been a point of distress for homeowners looking to sell, as many originally bought their homes when rates were well below current levels. 

As monetary policy tightened sharply in the pandemic’s aftermath, mortgage rates jumped as much as 8% last year, pulling owners off the market. 

With the weekly 30-year fixed mortgage rate now at 6.74%, this homeowner “lock-in effect” is easing, Redfin said. But although that’s boosting housing supply, it hasn’t translated into a meaningful rebound in home buyers.

Mortgage-purchase applications declined through February, as rates rose from early 2024. While mortgage rates are moving back down from last month’s 6.78% average, they are likely to remain elevated for longer, Redfin said.

Meanwhile, home sales fell 3.5% year-over-year, while median sale price jumped 6.6% on an annual basis. That’s as demand is still well above available supply. 

Between mortgage rates and higher prices, the median US monthly housing payment stood $2,686 through February, just $30 below last year’s all-time high.

Recently, the supply-demand imbalance has gotten the attention of the White House, who issued a 10-point plan on how to relieve the market. Proposed initiatives include mortgage-relief credit for first-time homebuyers, as well as legislative incentives to add 2 million homes.

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