How a Government Shutdown Affects the Real Estate Market                     

We’ve all heard about a government shutdown and what they mean to those working in government. But how do these shutdowns affect people who work outside of the government, yet rely on their services? For instance, real estate agents selling and buying homes, and mortgage loan officers could be in for some barriers. Real estate agents and MLOs must work together to help their clients through this confusing time. Luckily, history tells us government shutdowns shouldn’t lead to any long-term setbacks.

A furlough of government workers could throw a wrench into plans for buyers and sellers in the U.S. housing market. Loan approvals and mortgages could be delayed as IRS and Social Security Administration workers are furloughed.

It is true that loans and mortgages are supplied by the bank. But, before they can make approvals, the banks need to confirm and certify the buyer’s financial status. This includes tax returns. New loans should continue as planned, through government agency workflows. The difference is how long this process will take. As workers are furloughed, the workload itself is deferred and sent to those remaining; pending each agency’s contingency plan.

For instance, HUD’s 8,500 employees are prohibited from work during a government shutdown. HUD oversees the Fair Housing Act. This means borrowers applying for loans through the Federal Housing Administration or Department of Veterans affairs (both overseen by HUD) could face delays. The HUD’s contingency plan outlines how they go about working during the shutdown. While you’re clicking around, HUD has also supplied general FAQs for situations like these. Freddie Mac and Fannie Mae will not be affected because, although they are government sponsored, they are not government agencies themselves.

Seeing as mortgage and loan approval will resume eventually, a shutdown’s impact on the real estate market will be minimal. However, if your buyer cannot get approved by the closing date, it is possible that the deal could fall through. Agents must set reasonable expectations for their client and work to get to contract extended. According to an NAR survey, a previous government shutdown delayed 17% of closings.

The key to getting through a shut down with your clients in-tact is setting expectations. If your client is panicky or impatient, you could lose a bid. Make sure they understand their loans will be approved eventually and that they can use this time to prep for the big move.