Analysts say that the short-term effects on the U.S. housing industry of the government shutdown that started this week are likely to be modest. But if the shutdown continues — or if the political stalemate causes the government to default on its debt obligations — matters are likely to grow worse, reports Reuters ("U.S. Government Shutdown Threatening Housing Recovery," by John Gittelsohn, Prashant Gopal & Nadja Brandt).
For now, mortgage processing that involves Federal agencies will be slowed, Reuters reports: "Borrowers in the process of obtaining home loans could be delayed as lenders are blocked from verifying Social Security numbers and accessing Internal Revenue Service tax transcripts. The process may also lengthen the wait for borrowers seeking approval for mortgages backed by the Federal Housing Administration because its fulltime staff is now less than a tenth of its normal size and the U.S. Department of Agriculture, which backs mortgages in rural areas, won't take on new business during the shutdown."
But these effects are small by comparison with the possible fallout from a debt-ceiling impasse, says Reuters: "A bigger concern for the economy than the shutdown would be Congress's inability to raise the debt ceiling by Oct. 17, which could lead to a default on U.S. debt obligations. Mortgage rates would probably rise sharply, making homes unaffordable for many buyers, according to Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles." Gabriel told Reuters, "All bets are off and the downside economic impact will be grave."
