How the Government Shutdown Affects Real Estate

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Chevy Chase Punching Wally World Moose

Chevy disapproves

Unless you’ve turned a blind eye to the world, you know that the American government entered into shutdown mode Tuesday after the two houses of Congress couldn’t get together and pass a new spending bill for the new fiscal year. It’s been roughly 18 years since the last time this happened and, if you’ve kept up with the media outlets, there doesn’t seem to be any progress toward a resolution anytime soon.

The current shutdown affects a lot of what are deemed non-essential services: food inspectors, certain social programs and national parks, to name a few. Yes, that includes Hawaii’s Haleakala National Park and Volcanoes National Park. Heck, even the National Park Service website is down! They shut down the web server!

But more important to us real estate folks is how the government shutdown affects real estate.

What the Shutdown Means for Real Estate

First of all, you may not be getting a government-backed mortgage for a while if the impasse lasts more than a couple weeks. Most new mortgages these days are backed by Fannie Mae, Freddie Mac or the FHA (Federal Housing Authority). The first two aren’t significantly affected by the shutdown, but the FHA has cut their staff big time so expect the application and approval process to draaaaaaaag. Furthermore, the IRS is not issuing more 4506-T forms which are used to verify applicant income which will hinder newer applicants more so than ones already in the approval pipeline.

This means that, given a continued stalemate in Washington, CASH BUYERS may get an instant competitive edge over their conventional mortgage counterparts. If you have cash and are looking to buy a property, I’d be keeping a very close eye on what’s happening. New single family house in Honolulu? Vacation townhouse in Kihei? Beachside dream home in Kilauea? You might just find yourself with a winning deal soon.

Trouble for Home Sellers

The flip side of this is that homeowners in need of selling their house certainly don’t want a reduction in qualified buyers. When competing with other home sellers, you want as many people with their wallets open ready to buy as possible. Not only can this drive up your price but it also helps your house get sold regardless. This could really affect people who need to sell their house  instead of just testing the market. They’ll likely need to find a cash buyer or consider a seller-financing scenario if they need to unload.

Equity in Trouble?

But it’s not just mortgages that have felt the impact. In addition to the roughly 800,000 government workers who have been furloughed, the stock markets themselves have gotten a bit of a shakeup. The indexes have fallen overall in the wake up the political standoff. While the drop hasn’t been significant and certainly not a crash of any sort, it’s important to recognize the increased volatility that comes with having a government operating on a fiscal diet.

Any serious drop in stock value would likely have a corresponding drop in consumer purchasing power which could thin out the buyers pool even more. Again, a win for cash buyers, but I think everyone would rather see a healthy market in operation.

Can’t We All Just Get Along?

So whether you’re on the Republican or Democrat, Obamacare or anti-Obamacare side, I think we all just want to see our government back to work, our people back to work and mortgages being approved. And while the negotiations are happening thousands of miles away in Washington DC, here in Hawaii we still feel the ramifications. The Hawaii real estate scene has been flourishing and a continued shutdown of the American government could potentially have big ramifications. Hopefully this will wrap up in the near future. Aloha.

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  • Jessica Sala

    First time buyers are having a very tough time as loans aren’t currently being processed…