Government in gridlock - How will this affect Real Estate Investors?

The Federal Government in Gridlock – How Will This Affect Real Estate Investors?

FHA Shutdown?

US-GreatSeal-Obverse90% of loan activity is owned, underwritten, or insured by the Government agencies, so surely the shutdown isn’t good for real estate investments, right? Relax, there’s no great cause for concern for most investors- most mortgages won’t be impacted except in the amount of time it takes to get things processed. The FHA shutting down completely would substantially hinder things; however, the Government has said that the FHA will remain staffed, but at lower than full capacity, so expect the process to be slower in general. What assurances do you have as an investor that your assets won’t be too adversely affected?

For starters, the Federal Reserve is a private entity, and is not funded by Congress, so they will continue operating. Spokespeople have stated that Fannie and Freddie will keep processing loans, but you have to anticipate that those agencies rely on parts of the government that will be shut down. However, as we’ve seen during past shutdowns, some lenders may choose not to fund loans until things settle back down or they receive assurances that the federal guarantee is in place. Going with a larger lender with the liquidity to take the risk of funding without a guarantee may help to mitigate the stalled approval process.

Since so much of the FHA system is digital, some loan approvals may be delayed. Current guidelines also require at least one tax return from the IRS during the process. The IRS closing down, or having limited staffing, may cause delays in procuring that documentation. Some pre-approved loans also run the risk of expiring in the interim.

The USDA/Department of Agriculture is going to suspend loans granted through Rural Development programs, however. This could result in comparatively lesser availability of homes in rural areas in the coming months.

At the end of the day, however, as is so often the case, it comes down to sentiment. While there’s nothing that will really happen to most real estate investors due to the shutdown, the general perception of the public that the government is less effective today than they were yesterday could attack consumer confidence and give rise to fears that the country is sliding back into a recession.

As you can see, there isn’t a lot that will happen in the short term as far as real estate investments, in relation to the Fed shutdown. As seasoned investors know, and new investors will soon learn, one of real estate’s biggest advantages

is that it isn’t tied to the whims of the Fed. In fact, if the shutdown lasts for less than a week or ten days, there will be basically no impact to real estate investors at all.

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