Many people are concerned that the government shut down that took effect at midnight will affect various markets and industries in this country. Government-run parks and industries are shut down, over 800,000 people are on furlough, there will be an interruption in many services. But will the real estate market be affected?
Loan problems: if you are in the middle of obtaining financing via an FHA single family housing loan, you may be in a difficult situation. HUD initially announced that the FHA will not be able to fund, underwrite or approve any new loans during a shut down. Considering the FHA represents 80% of new loans this could be a problem in the real estate market. Luckily, HUD since amended that statement to say that FHA loans will be funded and approved during a shut down, albeit with a limited staff. In other words, the FHA will be able to underwrite and approve new loans, but it may take longer to do so. If you are in the process of obtaining a loan, waiting for a loan to fund or waiting for loan approval and are on a deadline to close escrow, be sure to speak with your mortgage professional immediately to see if you will be affected.
Government backed loans that are purchased by Freddie Mac and Fannie Mae are apparently not affected by the shut down. VA loans will also be unaffected, as they are funded by user fees charged to lenders (much like Fannie and Freddie).
If loans take longer to close due to the shut down it could become more of a buyers’ market once again. Those who have loans that do not need government underwriting or insurance may be in a better position to bargain. However, this will also depend on what happens to mortgage rates – an unknown scenario should the market be affected by a lengthy shutdown. Everything will depend on how long the shutdown lasts – if it is brief the housing market will not be overtly affected; but if it goes on for some time we could face problems. Hopefully Congress can find a resolution quickly.