Will the Government Shutdown Affect the Housing Market?
Since talk of a possible government shutdown, people have come to me asking how it will affect the housing market. Since the housing market primarily revolves around the mortgage market, prospective buyers’ access to new home loans is what will be affected more than anything. This is because more than 90 percent of all loan activity is underwritten, insured, or owned by the government and its affiliated entities.
So, how will a shutdown impact loans? Well, if you were trying to close quickly, you may be in for a surprise. Of course, new loans will continue to push through most government agency pipelines. What will become affected is how long the process takes, as many agencies expect to experience delays.
Which type of mortgages will be most affected? Wll, mortgages purchased and securitized by Fannie Mae and Freddie Mac will be unaffected because their operations are paid for by fees charged to lenders. The Department of Veterans Affairs will continue to guarantee mortgages for Americans that have served in the military since these loans are funded by user fees as well.
But, according to Forbes.com, if the government shutdown of 1995 – 1996 is any indicator, the process will in fact take longer than usual. “Loan Guaranty certificates of eligibility and certificates of reasonable value were delayed,” the VA warned in its September 25th contingency plan.
Because the FHA (Federal Housing Administration) currently endorses about 15% of the entire single-family mortgage market, this will be the mounting concern. During a government shutdown, the FHA’s Office of Single Family Housing will remain open for business, despite a smaller staff.
“FHA will be able to endorse single family loans during the shutdown. A limited number of FHA staff will be available to underwrite and approve new loans,” the HUD report states. In other words, other lenders’ loans will continue to be insured and some in-house lending will continue to take place at a reduced rate.
The FHA’s single-family loan operations are funded through multi-year appropriations, meaning their budget is not tied to the government’s standoff over funding for the new fiscal year that starts in October. On the other hand, what will be more affected is the agency’s Multifamily Housing Office, which is funded through yearly appropriations.
“Because we are able to endorse loans, we don’t expect the impact on the housing market to be significant, as long as the shutdown is brief,” continues the HUD report. “If the shutdown lasts and our commitment authority runs out, we do expect that potential homeowners will be impacted, as well as home sellers and the entire housing market.”
In the process of obtaining a USDA loan? One government lender that will indeed suspend its home loan activity, however, is the Department of Agriculture. According to the USDA, no new housing loans or guarantees will be issued through its Rural Development programs in a shutdown. The department also warns that such a scenario could cause “a setback in construction start-up,” and if the shutdown lasts for an extended period, “a substantial reduction in housing available in rural areas relative to population.”
“The government doesn’t generally approve loans, they basically just insure them,” states Don Frommeyer, president of the National Association of Mortgage Brokers and a vice president at Amtrust Mortgage Funding. “For the most part you aren’t going to see much of a hit in the mortgage market unless it goes for a long period of time.”
If the shutdown continues for some time, he adds, the worry will be what mortgage rates do in a market full of fiscal uncertainty and how that will affect the home buying, especially with the recent increase of rates.
Along with the uncertainty of whether a recession is in our future, comes Americans' lack of confidence in their ability to buy or sell homes. This may cause buyers to pullback on home purchases,
“Home sales is always the first housing variable that changes so one would see sales declining and that would naturally lead to more inventory on the market and eventually put pressure on prices,” he says. But that would be a worst-case scenario based on a long-term shutdown.
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Source: Forbes, forbes.com
Emily Benner - Realtor at Red Barn Real Estate
