How is the Government Shutdown Affecting the Housing Market?

government building on dark background

In a recent article, the National Association of Home Builders (NAHB) explained some of the effects the housing market is experiencing (or can soon expect) from the partial government shutdown. While we are nonpolitical, we felt it was important and timely to share this information with our readers. In this post, we’ll review the major highlights from the NAHB report and provide a simple breakdown of the shutdown and how different areas of the housing and real estate markets are being impacted. 

What is a Government Shutdown?

A government shutdown can occur when there is a delay or dispute over the federal budget for the upcoming fiscal year. When a shutdown goes into effect, nonessential government offices can no longer operate due to lack of funding. The shutdown remains in effect until the parties can come to an agreement and pass a budget bill. While some federal agencies may be able to continue operating on cash reserves, many federally run organizations will be forced to halt their operations.

Quick breakdown of current government shutdown:

On December 21, 2018 at midnight, the United States went into a government shutdown due to a dispute between President Trump and Congress over funding the federal budget for the 2019 fiscal year. One particular point of dispute, the funding of a border wall between the United States and Mexico, remains a hot-button issue in political circles.

The Effects

According to the NAHB, the current shutdown affects several federal departments, including HUD, the US Department of Agriculture, Commerce, Justice, Homeland Security, Interior, State, Transportation and Treasury. Several aspects of the housing and real estate industries are linked to government operations, therefore it’s not surprising that things like government-backed mortgages, homebuilding, and rental assistance will experience delays or may be unavailable.

Home Financing

  • According to the NAHB, FHA-insured single-family loans can still close during the shutdown; however, the decision ultimately lies with each individual lender. If you are currently in the process of securing an FHA loan, speak with your lender to verify that they will be able to close your loan successfully.
  • FHA multifamily insured projects with firm commitments and scheduled closing dates may move forward, says the NAHB, as well as closings on final endorsements that have critical external deadlines.
  • No new multifamily firm commitment will be issued.
  • The Office of Single Family Housing will not endorse Home Equity Conversion Mortgages (HECMs and also referred to as FHA reverse mortgages) during the shutdown.
  • Lenders will be able to obtain an FHA case number from FHA Connection, which provides FHA-insured lenders and business partners with direct, secure online access to HUD’s computer system. However, FHA staff will not be available to underwrite and approve single-family loans during the shutdown
  • Most Rural Development programs will not continue without funding. A shutdown of more than two weeks will likely have a significant impact on these programs.
  • The Department of Agriculture will not issue new Single Family Section 502 Direct Loans or Guaranteed Loans during the shutdown. Guaranteed loans issued prior to the shutdown may or may not be closed, depending on your lender. Check with your lender to verify.
  • Some lenders require home borrowers to file IRS form 4506-T to verify the mortgage applicant’s income and Social Security number. With the IRS shut down, this could result in major delays in some mortgage application approvals.

Housing Assistance

  • HUD will make payments under Section 8 and Project Rental Assistance Contracts (PRACs) where there is existing budget authority, multi-year funding, or where there is budget authority available from prior year appropriations or recaptures. This includes processing Section 8 and PRAC renewals for expiring contracts and processing amendment funds for non-expiring Section 8 contract renewals.
  • HUD is confident it can pay Project-Based Section 8 contracts through February.
  • Funding is also available for Housing Choice Voucher contracts through February. There may be a few first-time payments that are missed, but payments should be made through February for families under subsidy contracts
  • CDBG, HOME and other block grant funds will be dispersed in cases where failure to address issues result in a threat to safety of life and protection of property.
  • Authorized drawdowns for approved CPD program activities (homeless assistance programs, CDBG, HOME, HOPWA) using pre-FY2018 program funds will continue uninterrupted unless it is necessary for a HUD employee to approve a voucher or lift a system edit prior to a draw down.
  • The Section 521 Rental Assistance and Section 542 Rural Housing Vouchers will continue until funding is exhausted.

Home Building

According to NAHB’s report, builders are likely to experience “…delays for any housing-related federal government programs that are still operating and plan accordingly.”

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