Warning – political rant. If you don’t want to see a partisan real estate rant, just move on. Because I’m from the REALTOR© Party, which is neither Republican nor Democratic, but real-estate-centric.
I can’t stop thinking about it. What happens if the Federal Government shuts down? Specifically, what happens to the real estate market?
Well, I know a little about this, because I was selling real estate when this happened last time and it wasn’t pretty.
Buyers/Sellers Fear Losing Their Jobs
In 1995-96, when the government shut down before, almost every listing I had that was under contract either didn’t settle on time or the contract was canceled. Some buyers were so afraid that they would lose their jobs that they were willing to walk away from substantial earnest money deposits rather than commit themselves to buying their dream home. In the DC area, where the government provides many jobs directly, or indirectly through contractors, the forced vacation with no pay scared the pants off most buyers.
According to the Bureau of Labor Statistics, there are about 320,000 federal employees in the Washington Metropolitan Statistical Area (MSA). In Maryland, more than 25% of workers are employed by the Federal Government, with more working for contractors who are tied to the federal government.
And let’s face it, if the government shuts down – meaning no pay checks, health benefits, or unemployment benefits being paid – just the total uncertainty of what will happen next means that suddenly no one is thinking about real estate – they’re thinking about survival. For many homeowners who are teetering on the edge, this could push them over into foreclosure.
Back in 1995-96, virtually all processing on FHA and VA loans came to a screeching halt. So, how many loans are financed by FHA or VA these days? Look at the chart on the right – over 50% of all properties sold last month in Prince George’s County were FHA or VA financed. In terms of piling on, we’re already seeing changes to FHA financing that are likely to have a negative impact on buyers (and therefore on sellers). A government shut down could be another tipping point in stopping buyers from buying a home in this uncertain economic climate.
One of the things that characterized the 1995-96 shutdown was “RIFs” or Reductions in Force. Pink slips. You know, Republicans have said over and over that what corporate America needs to start hiring again is certainty. Certainty in knowing tax rates wouldn’t rise. Certainty that all those subsidies won’t go away.
Well, what homeowners, home buyers and home sellers need now is certainty. The certainty of knowing that their jobs won’t disappear in a flurry of bill signings. Or lack thereof.
Virtually every prognosticator, conservative or liberal, has agreed that a housing recovery will take care of many of our economic ills. A housing recovery signifies that job recovery is well underway. It means that property taxes get paid and more money flows into state government coffers. (See Maryland Real Estate Fun Fact #5 )It means that builders are secure enough to start building again, hiring thousands of construction workers, putting factories back to work cranking out all the widgets and gizmos needed for new home construction. (See Maryland Real Estate Fun Fact #1 and #2)
This is a very fragile time for the housing market. We’re entering into the Spring market – traditionally the strongest few months of the year for real estate.
It could all come to a stand-still if our Congress allows this to happen.
(FYI, all 10 Maryland Real Estate Fun Facts.)
© 2011 Susan Pruden