Navigating the Shutdown

While the dominant paradigm in Washington holds out for a few more votes to pass a budget that, amongst other things, would gut health insurance benefits as a condition of reopening, it feels to some like our economy is being held hostage as the government shutdown is threatening critical housing programs and economic stability on a national scale that is also being felt locally.

The first group hit by the impact were buyers needing flood insurance as a condition of their loan before they could close escrow, and as it heads into a second week, the shutdown is now also creating obstacles in funding for first-time and low- to moderate-income buyers, and rental assistance for some of our local residents, all of whom were already struggling with the cost of living as it was.

So far, I haven’t experienced any delays in our current residential transactions as none of the properties we currently have under contract are in a flood zone, but as the shutdown grinds on, Lenders may delay underwriting decisions or need to raise rates in order to offset the increased risk from the unknown which will have a direct bearing on some of our clients’ ability to buy a home.

The absence of data also complicates the Federal Reserve’s next move as The Fed are left either delaying action or making calls based on outdated information. That uncertainty keeps financial conditions tighter which will likely put off any plans for a reduction to the prime rate if a deal isn’t reached in Washington soon.

The Commercial Real Estate market is being impacted as well, as the Small Business Administration has stopped processing new loan applications. For their part, Fannie Mae and Freddie Mac are expected to continue their Commercial Real Estate operations, but delays are occurring since they require verification of information from multiple agencies they coordinate with that are now closed. 

Several of the commercial transactions I have underway locally with SBA loans are far enough along that they should be able to close without delay, but the pipeline is on hold for a few others still being negotiated, and there will likely be a backlog once things come back online. Fortunately, two other commercial purchase transactions I am handling involve seller financing and therefore won’t be impacted, but other transactions relying on third-party financing are likely going to need to have longer escrow periods, if they are able to close at all.

The overall effect of the shutdown is friction and hesitation forcing a widespread pause for planning and investment in both residential and commercial real estate, and the hope is that the shutdown gets worked out in Washington so we can all get back on track without too much more damage done. 

And in the meantime, my fellow agents and I continue to list and show properties and write offers so we can hit the ground running once things get back to normal.