What is the ripple effect of the government shutdown on real estate?

Plenty has been written about the downsides of the federal government shutdown, including where there were delays or closures and where business was still being done.

However, I’d like to begin with the big picture: Uncertainty is bad for business. If costs go down or stay the same, that’s great. If costs or interest rates rise, we can also budget for that. What people don’t like to do is guess about the future.

Therefore, politics impinge on real estate sales whenever buyers and sellers are unsure about what will happen in the near to medium term. Interest rate increases are a good example. When they start to go up, it often spurs sales because buyers can see that costs are rising and they act in order to limit those increases.

Lost wages have the greatest direct effect. Between the worry and the reality, real estate can, and sometimes must, go on the back burner. In the case of some nonessential and contract workers, the loss of wages may be permanent, in that they will never be paid for the weeks of the shutdown. Even those who will eventually be paid may still have cash flow issues.

Now, let’s turn to ongoing transactions. Fannie Mae and Freddie Mac are private entities and were still doing business, as was Veterans Affairs. United States Department of Agriculture loans were unavailable and Federal Housing Administration loans are expected to take longer. But if you need information or documents from Social Security or the Internal Revenue Service, regardless of loan type, be prepared to wait. Flood insurance is being processed normally.

For rental properties, Section 8 is a dilemma. Each office supposedly will run out of money for vouchers at different times, but all will run out eventually. Landlords can evict tenants, but their replacements won’t have vouchers either, and landlords will still have to plow and heat the premises, among other things. Cash flow may become a big problem so landlords may have to make tough decisions.

Barbara Pearce, President & CEO, Pearce Real Estate, (203) 281-9340, blp@hpearce.com