Wednesday, October 2, 2013

How the Federal Government Shutdown Could Derail the Housing Market

The Captain has never quite believed that the housing recovery was a strong as most seemed to believe. Yes, sales and pricing have been up in most areas. Lenders have loosened up a bit. It's still a sellers' market, but not as much as a few months ago.

First, the statistics have never been even enough to give a real comfort level. Sales were on the rise, but took a dip in August. September isn't in, yet, but it looks as though it will be an okay month. Interest rates are up, but settling back.

Second--and this is a personal thing--there are too many cash sales. Nothing wrong with cash, but home buyers don't use cash. Investors do. Also, the number of buyers in 2013 seemed to result from pent-up demand more than household creation, the traditional engine of the housing market.

All of which means...what? The Captain doesn't know, and I don't think anyone else does, either. Let's agree that the market is up, sort of. Maybe not, but we hope it is.

Comes now the federal government shutdown. Of the noncash sales, VA, FHA and USDA provide a huge number of the mortgages, because few buyers have 20% of the purchase price for down payments. It's true that Fannie and Freddie offer low-downpayment loans, but borrowers better have a FICO score of 725 or higher to get one, which means F and F aren't doing many of these loans.

Which throws us back to the federal agencies. All are reporting slowdowns. Reports on FHA and VA range from "slight" to "getting serious." USDA, which funds rural area loans, is not taking new applications.

A standard guideline for all loans is IRS and Social Security Administration verifications and tax transcripts, and guess what? They aren't producing them. This fact alone is serious, because it could virtually shut down lending, unless underwriting guidelines get relaxed--which isn't likely.

With a fragile recovery at best, shutting down these mortgage sources could knock the whole thing into a tailspin.

There oughtta be a law, right?