For the first time in the past 17 years, the inner workings of the United States federal government have ceased to function. And for the second week in a row, the government shutdown remains in effect. Unless you’re directly employed by the federal government, odds are that your life is more or less the same as it was two weeks ago. But there are ways in which a prolonged government shutdown could begin to have a significant impact on the housing recovery.
The Consequences of a Prolonged Shutdown
One of the ways in which the housing market is being directly affected by the shutdown is through the processing of home loan applications. The shutdown has stalled thousands of home loan applications because many of the government workers who typically process the loans are on furlough. The FHA isn’t even accepting new applications because the underwriters who are normally on board aren’t able to clear any of the applicants.
Advertisement
The markets are already anxious by the seeming instability of our political system. And we only need to look back to 2011 to see what affect this kind of anxiety caused. For the first time in the history of the country, our credit rating was downgraded. Investors are looking for stability, and a prolonged shutdown would send the wrong message.
What’s perhaps the most damaging part of the shutdown is the timing of it. Mortgage rates have been falling consistently for the past month and they are still on a downwards trend. This would normally be a great boon to the housing sector because it would entice first time home buyers to take out loans. But because the government is shut down, there is simply nothing that many of these buyers will be able to do if they can’t get loans from a private insurer.
The Looming Possibility of Default
The possibility of the United States defaulting on its debt is really unthinkable when you consider what it would entail. It would be a major blow to the economy. But, more importantly, it would remain a wholly preventable self-inflicted wound. After all, we do have the money to avoid going into default.
According to Chief Zillow Economist Dr. Stan Humphries, “the effects of a government default associated with the impending debt-ceiling deadline would be more pronounced because of its greater impact on domestic and international markets. This will rattle consumers and investors alike, slow down the overall economic recovery and further slow the housing recovery, which is already undergoing a moderation in the pace of home value gains due to rising mortgage rates.”
House Speaker Boehner has stated that he won’t let the United States go into default. But nothing in politics is ever certain. The shutdown in effect now was merely over the funding of a health care bill that was passed into law two years ago. And both sides seem dug in about whether or not the debt ceiling should be raised. The national economy and the housing market depend on government working the way that it’s supposed to. For everyone’s sake, let’s hope this ends without fireworks.
