Are Home Buyers Suffering from the Shutdown?
Mixed messages have crept out of Washington’s toxic environment to infect the rest of the country. Uncertainty rules the day in the Capitol and governs economic sectors as well, including the housing marking — a bellwether for the overall economy. Speaking to NPR, Mark Zandi, a chief economist for Moody’s Analytics, described housing as ”key to the economic recovery.”
In late September, Yale Professor Robert Shiller (of Case-Shiller index fame) writing for the New York Times indicated that the housing market was gearing up, driven by fears that the currently low interests rates would rise. That, coupled with the economy recovering, made it a good time to buy.
But Professor Shiller’s analysis debuted in a pre-shutdown America, and his sunny optimism is being marred by tales of delayed deals. In the Los Angeles Times, two such stories appear. First is Jay Joerger, who cannot close on his purchase in Palm Springs, C.A., because the deal must be approved by the U. S. Bureau of Indian Affairs, which is closed due to the shutdown. Second is a couple in Chino Hills, C.A., who must pay a penalty of $100 per day to the seller for not closing in time because the IRS is unable to verify income.
So, is it all doom and gloom for the US housing market, and therefore the recovery? Not entirely. In fact, the inconstancy may help certain buyers as much as it frustrates others. For starters, according to a report released by Bankrate.com on October 9, the rate for 30-year fixed mortgages fell from 4.41 to 4.39 percent, continuing the downward trend of recent weeks. The 15-year rate stayed static at 3.47 percent and the 5-year adjustable-rate mortgage (or ARM) also fell by 0.06 percent to land at 3.34 percent for the week. Lower interest rates may attract buyers to the market, especially if there is fear rates will rise shortly after the government reopens.
The shutdown is also a delay for some to enter the market. The Wall Street Journal‘s Market Watch reported that the shutdown is mainly influencing very high-income buyers, who rely on larger loans and very low income buyers who need government loans to purchase homes. This presents an opportunity for those in the middle to capitalize on less competition.
Of course, to do this requires sloughing through the paperwork, which has been further complicated by under-staffed agencies. The Federal Housing Authority (FHA) and Department of Housing and Urban Development (HUD) have both whittled their respective staffs down, furloughing employees. This is not a problem according to NPR, which explains that many forms and filings can be filled out online. However, the extra work becomes a factor when income statements generally provided by the IRS are needed.
Another potential for gumming up the works is limited capital. As it stands now, private capital is being heavily relied on by lenders for loans. If the shutdown continues, and the government cannot provide loans through Fannie Mae or Freddie Mac, private lenders will become increasingly wary of using their own capital to finance the loans.
As with most implications of the government shutdown, the effects are rolling out haphazardly and are gaining steam as time passes. The overall picture is not bleak, but not great either. The longer the shutdown lasts, the more chances the seeping toxicity will adversely affect sectors and the overall economy.