What a Government Shutdown Means for Real Estate

Real estate is not immune to being affected by government shutdowns - from FHA loans and rental assistance to the National Flood Insurance Program. Many things can be severely delayed or even halted.

So, how did we get here?

There is a process in government operations called "regular order." This is a process driven by committees, to form and pass legislation. Rather than a formal set of rules, it is a step-by-step procedure where transparency and participation are key.

For a bill to pass, here is what would typically happen:

• Introduction: A bill is introduced, either in the Senate or the House.

• Committee Referral: The bill is assigned to the appropriate committees.

• Committee Hearings: Public hearings are held where committee members can get information from eternal experts and stakeholders.

• Committee Markup: The bill is reviewed by the committee word-by-word, and often results in debates and votes.

• Floor Consideration: The full body debates the bill, considering amendments, before the official vote. A "conference committee" may come into play where the bill is negotiated to find a suitable compromise.

• Presidential Signature: The President can sign the bill (making it law), veto the bill, or even allow it to become a law without their signature.

In 1980, the U.S. Attorney General determined that, if funding lapses, government agencies must shut down. This change drastically affected how we handle budget disagreements.

The current shutdown is due to the non-passing of 12 bills totaling trillions of dollars of spending.

Where do we go from here?

A government shut down is like quick sand - once it begins, every move could cause you to get deeper and deeper, and the longer you are in it, the worse it gets. Why? Because the leverage of negotiations is gone. Now, all that can be done is to try to come to an agreement (or at least attempt to begin to reopen some programs) - while perhaps trying to keep the essence of your original stance.

The Shutdown & Real Estate

Real estate is one of the most heavily regulated and taxed transactions. This means there are dozens of governmental bodies involved in the process of real estate transactions (loans, insurance, verifications, etc). This means delayed loan approvals is very likely, if the approval happens at all. For example, the USDA handles rural loans, and that has been shut down - making rural areas especially vulnerable.

For a mortgage loan, the IRS is often needed for transcripts and income verification documents, so a lender may not be able to close loans as quickly and/or easily, if at all.

The National Flood Insurance Program will be unable to issue new flood policies and renewals, unless an exception is granted. This could halt the closings of homes requiring flood insurance - typically 1,400 property transactions per day. However, policy transfers are still allowed - in which a seller transfers a current, active policy to the new buyer. If we look back to the shutdown in 2018, this program was not down as long as others, so there is hope we can get this program back on track soon.

Bottom Line

Ultimately, real estate transactions may slow down, or be completed halted - and new construction is vulnerable in its own way aside from resale. In addition, economic volatility also means mortgage rates may respond. And all of this affects consumer confidence.

Source: NAR