Government shutdown looms large for real estate, mortgage

Government shutdowns have repeatedly rippled through the real estate industry over the past three decades, delaying loans, snarling flood insurance and rattling buyer confidence.

A federal shutdown is days away as of Friday — threatening paychecks for hundreds of thousands of workers, freezing key reports like monthly jobs data and placing a layer of uncertainty over real estate transactions.

Lawmakers have until Tuesday to pass a temporary funding bill, but talks are stalled. Republicans are pushing a short-term extension with no add-ons, while Democrats want it to include health care provisions such as extended Obamacare subsidies.

Any plan to avert a shutdown will need bipartisan support to clear the 60-vote threshold in the Senate.

President Donald Trump has also expressed plans for large-scale permanent job losses at federal agencies should a shutdown occur.

Shutdown History

Short, partial shutdowns date back to the 1980s, but the more consequential episodes in recent memory include the 16-day 2013 shutdown and the 35-day 2018-19 lapse.

Both shutdowns illustrated how federal interruptions can stall mortgage closings and regulatory functions critical to property transactions.

“Hopefully it doesn’t happen at all, and the government, who we pay extremely well, gets its act together and actually works together to figure these things out,” Compass Chief Evangelist Leonard Steinberg told HousingWire. “The last thing anyone in America wants is another reason for America to be embarrassed by its government.”

Flood Insurance Danger

Lapses in the National Flood Insurance Program (NFIP) have been particularly disruptive in coastal and flood-prone states.

Industry estimates during recent funding fights suggested the NFIP is used in thousands of daily closings — interruptions to the program can force appraisers, title companies and lenders to pause sales that require flood coverage.

“Builders need to be aware that even a short-term disruption to the program will force delays — and in some cases, cancellations — to home sales and multifamily transactions that require federal flood insurance under the NFIP,” the National Association of Home Builders (NAHB) stated during the most recent NFIP funding standoff in March.

‘Artificial Obstacle’

Uncertainty and diminished consumer confidence can slow market activity.

“This is fundamentally an issue of confidence,” said NAR Chief Economist Lawrence Yun in 2019. “People are concerned about the direction of the economy and the perception of a chaotic environment in Washington.”