The Ripple Effect of the Government Shutdown on Real Estate by Barbara Pearce

Plenty has been written about the downsides of the current shutdown of the Federal government, but sometimes people get confused about where there are delays or closures, and where business is still being done.  However, I’d like to begin with the big picture:  Uncertainty is bad for business.  If costs go down or stay the same, that’s great for us.  If costs, or interest rates, rise, we can also budget for that.  What people really don’t seem to like to do is guess about the future.  Therefore, politics impinges on real estate sales whenever buyers and sellers are unsure what will happen in the near to medium term.  Interest rate increases are a good example.  When they start to go up, it often spurs sales, because buyers can see that costs are rising, and they act in order to limit those increases. 

Lost wages probably have the greatest direct effect.  Between the worry and the reality, people have enough to think about, and real estate can, and sometimes must, go on the back burner.  In the case of some nonessential and contract workers, the loss of wages may be permanent, in that they will never be paid for the weeks of the shutdown.  Even those who will eventually be paid may clearly have cash flow issues.

Now, let’s turn to ongoing transactions.  Fannie Mae and Freddie Mac are private entities, so they are still doing business, as is the VA, but USDA loans are out for the present. FHA loans are expected to take longer.  But, if you need information or documents from Social Security or the IRS, regardless of loan type, get in line and prepare to wait.  Flood insurance is apparently being processed normally.

For rental properties, Section 8 is a real dilemma.  Each office supposedly will run out of money for vouchers at different times, but all will run out eventually.  Landlords can, I guess, evict tenants, but their replacements won’t have vouchers either, and landlords will still have to plow and heat the premises, among other things.  Cash flow may become a big problem.  Regular tenants may not be able to pay, and that’s even trickier, since they won’t be getting retroactive vouchers when the shutdown is over, so landlords may have to make tough decisions. 

This is not a complete list, or a certain one, but food for thought.