The government shutdown is causing great anxiety throughout the nation, and worry is building throughout the housing industry. Despite a 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. Is the actual problem the shutdown or the fear that is is creating?
Chief Economist for the National Association of Realtors, Lawrence Yun, says “It’s mostly fear-based…During the first week of shutdown, there was no sizable impact.”
One factor is that the US Dept of Agriculture – currently sidelined by the shutdown- provides loans directly to buyers in rural and suburban areas, but that program only accounts for up to 3% of the overall housing market.
The remainder, FHA, Fannie & Freddie, they are still operating, and some of the documentation requirements are being temporarily waived. ..so through the first week the shutdown appeared to have no large effect. 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.