US Government Shutdown Hits Real Estate Market

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The U.S. real estate industry is bracing for the impact of the first government shutdown in 17 years, which went into effect Tuesday morning.

In the short term, there should be minimal disruptions in the federal loan processing apparatus, government officials say.

The Federal Housing Authority FHA will continue to endorse single family loans, and underwrite and approve new loans during the shutdown, contrary to some media reports. But the agency will be working with a drastically reduced staff and all 80 Department of Housing and Urban Development field offices will be closed, "with some limited exceptions for a very narrow range of activities that are permitted during a lapse in appropriations," according to the agency's contingency plan.

"Because we are able to endorse loans, we don't expect the impact on the housing market to be significant, as long as the shutdown is brief," HUD says in its contingency plan. "We could also see a decline in home sales during an extended shutdown period, reversing the trend toward a strengthening market that we've been experiencing."

But HUD is blunt in its assessment if the shutdown continues. HUD's staffing will go from 8,709 to 349.

"If the shutdown lasts and our commitment authority runs out, we do expect that potential homeowners will be impacted, as well as home sellers and the entire housing market," HUD says. "We could also see a decline in home sales during an extended shutdown period, reversing the trend toward a strengthening market that we've been experiencing."

The federal shutdown will impact the housing market in other ways. Furloughs at the Internal Revenue Service, Social Security Administration and Veterans Affairs will make it difficult to find information and documents to close deals.

The V.A. won't be affected as drastically as other agencies - only about 14,000 of the agency's 332,000 employees are scheduled for furloughs, due to a different appropriations process for most employees.

But the impact on buyer confidence and sales will be more difficult to forecast. On a practical level, more than 700,000 government are going without pay, a significant part of the buying public.

"It's just one of these things; we just sit back and wait and see what happens," Claudette Reuther, president of the New Orleans Metropolitan Association of Realtors, told the Times-Picayune.

The length of the shutdown is the key variable, industry officials agree. HUD will eventually run out of its authority to underwrite loans. At the very least, real estate industry professionals shouldn't expect prompt response from government offices.

"In most cases, if you call or email the field office or Headquarters staff, you will hear a voicemail or receive a return email indicating that the Government is closed," HUD reports.