As I am writing this Friday morning, it looks like we are heading towards another government shutdown. By the time you read this, the shutdown may have been averted, but if not, here are some ways the shutdown will affect the real estate market.
- Lenders can’t verify the income of borrowers because of IRS furloughs. Copies of tax returns are routinely used to double check that buyers have provided accurate information. This will have the widest impact on the market, as buyers will be trying to extend contingency periods and adjust settlement timeframes. Homeowners who want to refinance might also will be affected.
- Lenders can’t access the Social Security website to verify borrowers’ Social Security numbers to confirm their identity. Lenders scrutinize everything on the loan application these days and won’t process a loan without confirming the Social Security number.
- The Federal Housing Authority (FHA) will be operating with a short staff if it isn’t stopped completely. FHA loans are insured by the Federal government and the loan are made through many lenders. If you are using an FHA loan or are selling your home to a buyer using an FHA loan, there will be delays in getting the loan processed.
- The US Department of Agriculture (USDA) through its Rural Development program makes loans in rural areas. USDA loans will meet similar delays as FHA loans. There are probably not any USDA loans made in Arlington, but far out suburbs may be affected.
- Fannie Mae and Freddie Mac will continue to purchase and guarantee mortgages for lenders without any delays. They aren’t shut down since they are not reliant on appropriated funds. However, military vets may experience problems if they are getting a loan through the Veterans Affairs (VA) loan program.
- Buyers will have to be patient with the delays in loan processing but should still continue with their home buying plans. At this point, it’s better to be prepared and keep “the business as usual” attitude with their lender so they’re a jump ahead once the government reopens. In fact, for those buyers who are earnestly looking for a home, a good deal can be had as many buyers will sit out the shutdown. Especially if they are an employee of the Federal government.
- Inventory will get even tighter. We are already at a very low supply of housing throughout the region. With the shutdown, there will be some sellers that will wait to list their home. There will also be other sellers that decide to take their home off the market during this time. Committed sellers will remain in the market. If you are a cash buyer, you are in a great bargaining position.
Markets can adjust for a short term shutdown, but the longer it goes on, the more unstable things get. This may cause mortgage interest rates to fluctuate or shoot up if this lingers past our debt ceiling date. This increase may deter buyers from buying or may increase debt to income ratios and loan approvals. If buyers aren’t buying, then demand is lowered and this would cause a drop in home values.
If you have a house under contract and the shutdown happens, the best thing to do is reach out to your agent, the title company handling the sale and if you are a buyer, your loan officer to see what the impact is on you and your deal. Even if you are not a government employee, the shutdown may affect you.