Will the government shutdown negatively affect California's housing recovery?

  • Yes. (67%, 172 Votes)
  • No. (33%, 84 Votes)

Total Voters: 256

The government has shut down for the first time in 17 years and no one is happy about it.

The biggest question on our minds is: how will the shutdown affect the housing market?

The following are unaffected by the government shutdown:

  • the Federal Housing Administration (FHA);
  • Veterans Affairs (VA) loan services;
  • Ginnie Mae;
  • Fannie Mae; and
  • Freddie Mac.

However, lenders will be unable to verify tax returns since the Internal Revenue Service (IRS) will be affected by the shutdown. Lenders are not required to verify tax returns, but many choose to do so. This will slow the approval process for many homebuyers and refinancers during the federal government’s temporary hiatus.

first tuesday insight

This congressional form of “chicken” has already failed: neither side was able to compromise on the federal budget and now we’re in a shutdown. How long will it be before they can agree on a budget?

The answer to this question will determine the extent of the shutdown’s economic impact. The longer the shutdown continues, the more likely it is to cause a slowdown in California home sales, which have already been experiencing a relatively flat year.

Further, the shutdown will destabilize the broader economy, which is still in a state of prolonged and delicate recovery.

This government ineptitude certainly does not bode well for the looming debt ceiling limit, scheduled to be breached on October 17. Legislators will need to extend the debt ceiling by then or force the federal government to default. Of course, the two sides of the aisle disagree on this one, as well.

The last time this happened, our credit rating was downgraded, the economy suffered and there was widespread financial uncertainty.

What can homebuyers and sellers do during all this mess?

Advise them to proceed, but with caution. If the shutdown continues for a few weeks, expect some market slowdown. In the meantime, be ready for delays in the approval process as lenders are unable to get the requested information from the furloughed IRS.

Re: Mortgage market built to withstand government shutdown from HousingWire