The end of the fiscal year for the U.S. government is on September 30th. At this point, lawmakers have not come to an agreement on a budget and Congress has not yet approved an extension. Therefore, it is possible that we could see a government shutdown as soon as October 1st. A government shutdown occurs when Congress fails to pass a budget bill or when the president refuses to sign a budget bill into law. This can lead to the closure of many non-essential government agencies and the furloughing or firing of government employees. So what are the options for the government? How would a government shutdown impact real estate? We discuss below.
3 options for a possible government shutdown
- Budget signed/passed: It is possible that Congress could pass a budget at the last minute and the president signs it. In this case, nothing changes.
- Congress approves a short-term extension: It is possible that a short-term (i.e. 30-day) extension is approved by Congress. In this scenario, the government would continue operating at its current level while lawmakers continue to work on an agreement.
- Complete government shutdown: In this scenario, the government could stop funding all agencies except those considered vital to the country’s operation.
Impacts on real estate from a government shutdown
- Delayed loan processing: The Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) are two of the largest providers of government-backed mortgages. During a government shutdown, these agencies may have limited staffing or be completely closed, which can lead to delays in loan processing. This can be a major inconvenience for home buyers and sellers, and it can even derail real estate transactions altogether.
- Delayed building permits and inspections: As a result of a government shutdown, it is quite likely that the issuance of building permits and the completion various building inspections would be halted. This would create a bottleneck in demand for all projects.
- Increased mortgage rates: If a government shutdown lasts for a long period of time, it can lead to an increase in mortgage rates. This is because investors may become more risk averse and demand a higher return on their investment. Higher mortgage rates can make it more difficult for people to afford to buy a home, which can lead to a decrease in demand for housing.
- Reduced home values: If the shutdown causes a decrease in demand for housing, it can also lead to a decrease in home values. This is because sellers may be forced to lower their prices in order to attract buyers. A decrease in home values can be a major financial setback for homeowners, and it can also make it more difficult for people to sell their homes.
Although a potential government shutdown is outside of our control, it is important to be prepared for all possible outcomes. Here are some tips for buying or selling a home during a shutdown:
- Be prepared for delays: If you are buying or selling a home during a government shutdown, be prepared for the possibility of delays. This is especially true if you are applying for a government-backed mortgage.
- Stay in communication with your lender: If you are applying for a mortgage, stay in close communication with your lender. They can keep you updated on the status of your loan and let you know if there are any delays.
- Have a backup plan: If you are selling your home, have a backup plan in case the sale is delayed due to the government shutdown. This may include having a pre-approved buyer lined up or being prepared to lower your asking price.
Do you have any further questions on how a shutdown could impact your buying or selling of a home? We can help! Contact Natasha at Live South Florida Realty, Inc. today! Of course, be sure to also download our free Florida Home Search app for your smartphone or tablet.