Tuesday, October 8, 2013

What the government shutdown means for home buyers and sellers

With Congress unable to come to an agreement, we've got a situation known as a partial government shutdown. The last time this happened was in 1995 when there was a shutdown that lasted for 21 days.

Many agencies, such as NASA, have furloughed non-essential personnel. Still others are operating at full capacity, including the military and TSA. There are many, including Housing and Urban Development, which are operating with skeleton crews.

Early reports stated that the Federal Housing Administration would stop processing loan applications. This is not the case. The first contingency plan issued by HUD mistakenly stated that FHA would be unable to endorse any single-family loans and that staff would be furloughed.

The announcement sent a panic through the real estate market. After noticing the error, HUD issued a statement saying that its Office of Single Family Housing will continue to endorse new loans even in the event of a lapse in appropriations.

The FHA is funded through multiyear appropriations. There will be some reductions in staff and furloughs, but it will be able to operate. Because the department will be short-staffed, there could be some delays, but the paperwork will be processed. Multi-family operations, however, are funded on a year-by-year basis. During a shutdown, condo projects would be put on hold because the FHA will not be able to underwrite them.

It is unknown at this time how much of a delay we can expect in single-family loan applications or what the long-term impact of a lengthy shutdown will be. In its statement, HUD said that it does not expect the impact on the housing market to be significant, provided the government shutdown is brief.