Well tonight’s the night.
As I sit here watching television, it reminds me of seeing a New Year’s Eve countdown – anticipating the midnight hour and the start of a fresh new year, one that brings promise, hope and change, and of course, fiscally prudent resolutions.
And then there’s the federal government budget impasse.
For weeks both political parties have been maneuvering, cajoling, pressuring and more specifically, blaming each other for the wide disagreement in the direction of policy and fiscal austerity. And tonight we are on the verge of telling 800,000 federal workers not to come to work, suspending countless government agencies, closing national parks, delaying issuance of income tax refunds and many other items if a budget agreement is not hammered out or another temporary spending resolution is not passed.
But what about housing?
Does the government shutdown also shut down the national housing market which has been a combination of manic, fragile and anemic for the past few years? FHA touches as many as 30% of all mortgages right now, about double its historic market share and has become one of the primary tools for the recovery of the housing market.
Federal Housing Administration (FHA)
The key impact to housing seems to be centered on the Federal Housing Administration.
The FHA is particularly popular with first-time home buyers because it requires minimum down payments of just 3.5%. The New Deal-era agency doesn’t actually make mortgages. Instead, it insures lenders against the risk of a default for loans that meet its standards.
But if the federal government shuts down, the FHA won’t be insuring any new loans. Banks will still be able to make FHA loans, but they’ll have to fund and hold onto those loans until the government re-opens for business.
As a result of the shutdown, potential sales transactions could fall apart as the timeline needed for financing expands placing lenders in limbo without government guarantees for the mortgages they are issuing.
Fannie Mae and Freddie Mac
Even though the former GSE’s Fannie Mae and Freddie Mac are now federal government entities, they are not going to shut down if the government shuts down.
Beyond all the specifics, there is one key ingredient that is perhaps more powerful than any government agency as it relates to housing – it’s called “uncertainty“. When consumers are uncertain about things, they hunker down and wait. This is not the greatest outcome for an economy that is trying to recover – for a housing market that is trying to recover.
“Uncertainty is generally bad for the housing market right now,” said Sarah Wartell, executive vice president at the liberal Center for American Progress and a former FHA official. “Anything that slows down the processing and creates more delay is an economic negative.”
At the stroke of midnight, whether or not a budget agreement is hammered out or another temporary spending resolution is passed, housing’s most ardent foe is always the loss of momentum caused by uncertainty.
Unlike Washington politicians, let’s all agree on that.
UPDATE: Uhh…Nevermind. Congress agrees to stopgap funding to avert a government shutdown.