Five Things Real Estate Learned During a Shut Down - PropertyBlawg

Five Things Real Estate Learned During a Shut Down

by donstevens on October 24, 2013

The government shutdown could negatively impact the US real estate market. Here are five ways it’s already hurting.

The government shutdown affects most people in the United States in one way or another. For the real estate market, some hard lessons are learned from this federal government break. In this industry, which is still trying to recover from the sluggish economy, the government closing its doors really can hurt. The question many people (buyers, investors, and sellers) want to know is about its effect. What does this shutdown really mean to the housing market?

#1 – Loans Coming to a Halt

One of the biggest implications of the government shutdown happened day one. Some types of mortgage loans simply stopped being processed. If you were purchasing a home (or counting on a purchase to go through) chances are good this shutdown put a hold on it. One simple reason for this is that most mortgage lenders require buyers to sign documents allowing the lender to pull IRS records. Without the IRS processing such forms, there’s a no verification possible. Even checking Social Security numbers is not possible.

#2 – Consumer Confidence Could Slip

Another potentially big risk is likely to occur if the shutdown continues. If the government cannot get it together, consumer confidence will suffer. This is something the housing market has just been able to build up over the last 12 to 18 months. Should the debt ceiling deadline not be met, it’s likely economic crisis will occur.

#3 – Federal Administration Loans – On Hold, Too

In fact, that is one of the biggest effects of the government shutdown. Virtually everything is on hold. That includes the applications for FHA loans, some of the most popular types of loans for first time homebuyers. With the FHA’s staff all furloughed, it is likely any processing of FHA loans will take longer than expected.

#4 – Government Workers Won’t Get Loans

If your business put you “on hold” for some time, a lender would not likely approve a loan for you, either. For the thousands of men and women who are not working right now, loan approval of any type, including mortgages isn’t likely. Unless the individual can qualify for a mortgage loan without this income, it is likely these people will also be held back from buying a home.

#5 – Rates Could Rise

Mortgage interest rates could be impacted by the government shutdown. Some experts believe rates will continue to remain at historic loans (allowing individuals to lock in very low interest rates for the time being.) Other experts worry that a long period of government shutdown will cause significant worry in investors, tumbling stock market numbers and causing a drop in the value of the dollar. It could mean rates could rise in some situations.

However, this may not occur. Most often, when the stock market does poorly, banks hold down these rates to encourage purchases. That’s likely to happen unless the government shutdown forces a significant impact on the average American.

One thing remains certain. If the government shutdown continues and it continues long term, the US housing market’s recovery will slow and eventually stall. Anyone involved in this industry has been on the sidelines cheering it on for some time. A slowdown now could mean a loss of significant confidence for potential future buyers. And, since the housing market is tied directly to the economy, that too will likely be negatively impacted should this slowdown continue over the long term.

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