The Government Shutdown and Its Play on Housing
The government shutdown is causing a flurry of anxiety throughout the nation, and worry is accumulating throughout the housing industry. Despite a small fall cool down due to rising interest rates, the rebound was still moving forward with momentum, and industry experts now fear that the shutdown could stall and potentially derail the progress of housing. However, is the actual problem the shutdown, or the fear that it is creating?
“It's mostly fear-based,” says Lawrence Yun, Chief Economist for the National Association of REALTORS. “During the first week of shut down, there was no sizable impact,” he continues.
While the U.S. Department of Agriculture—currently sidelined--provides loans directly to buyers in rural and exurban areas, Yun notes that the program only makes up 3 percent of the overall housing market.
“So three percent is currently out of the game, but the remainder—FHA, Fannie and Freddie, they are still operating, and some of the documentation requirements are being temporarily waived, so throughout the first week the shutdown appeared to have no large impact,” Yun continues.
However, the gears may shift if the shutdown drags out. Many lenders who are currently waiving things like impact verification through the IRS are using their own capital to originate loans. This is only a quick fix, as many of them will soon run out of capital. Other lenders are delaying mortgage approvals, while still others are flat-out refusing new applications.
Additionally, if interest rates continue rising based on the fear of a debt default, sales may suffer, and anxiety about the state of the economy overall may stall potential buyers from moving forward with their house hunt. If borrowers can't secure mortgages, sales will slow and prices could plummet.
“With each passing week, the negative impact to housing market will intensify,” Yun says.