At the end of last week, it looked like a deal was about to be struck between congress and the White House. Now those negotiations have broken down without any successful resolution and the October 17 deadline is looming large while we’re left wondering whether or not a deal will come through in time.

We all know that the U.S. defaulting on the nation’s debt could have catastrophic consequences in the economic realm, but what effects will be felt in the real estate market and how soon will they surface?

The first and most immediate effect of a U.S. debt default would be rising interest rates across the board (and even around the world). This would translate into more expensive financing for real estate investors and business owners looking to purchase commercial properties. The past few months have already seen some fluctuation in interest rates as people have speculated on whether the Federal Reserve would continue its bond-buying to shore up the U.S. financial market, which is currently playing a major role in keeping interest rates stable and low enough to encourage more investors to buy properties. These efforts would be completely derailed in the aftermath of a debt default.

Along with rising interest rates, many experts speculate that a default could bring on another recession and result in even tighter lending standards as well as drops in property values and equity. This could make it harder for buyers to get their financing approved and for sellers to recoup the money which they have put into the property.

Another segment of the commercial real estate market which could be adversely affected would be the multifamily sector. It is predicted that a default could trigger at least another recession if not a full-fledged depression. This would likely result in another increase in unemployment, which could result in residential tenants who can’t fulfill their leases. This creates a domino effect as owners of multifamily properties experience a drop in their income and a rise in vacancies. A depression could also cause other industries and businesses to see decreased profits, which could make defaults on loans or leases for office complexes and other commercial properties a more frequent occurrence. For a real estate market which is only just made it onto the road to recovery following the 2008 financial crisis, the fallout from a debt default is nearly impossible to fully imagine or predict.

Even if a default is averted with a last-minute deal, its potential occurrence has already done damage to consumer confidence. This can affect more than just potential real estate deals; it has consumers thinking twice about how much money they’re spending just as we’re heading into retail’s biggest shopping season. If retail profits drop, then commercial real estate investors with retail properties or tenants may see decreases in their profits or an increase in defaults and vacancies.

Questions about the default in larger terms? Check out BBC’s “Q&A: Default” here.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.