How will the shutdown affect the market
At the time of this writing we are still uncertain of the status of the federal government shutdown but we assume nothing has been resolved to increase the debt limit. Many are asking if their home loans will still go through. The last we were told is that FHA and Veteran's Loans are still being funded. That means that, if you were already approved for financing, your loan will continue to be processed and you will likely meet your closing date. Not so for USDA Rural Development loans. Those loans are reportedly at a standstill until funding is approved by Congress.
Further impacts on the housing industry could be felt as the standoff in Washington continues. According to the National Association of Realtors, if the government fails to raise the debt ceiling, it is likely to affect interest rates. "All it takes is a one-percentage point increase in mortgage interest rates because of a debt ceiling breach by the federal government for home sales to drop by up to 450,000 units," NAR President Gary Thomas testified Thursday at a Senate Banking Committee hearing.
"This is a bump in rates immediately because of the crisis, so it's going to have a detrimental effect on the housing industry, which obviously has a detrimental effect on the overall economy," he said.
He urged lawmakers to resolve differences and increase the debt ceiling because a slower real estate sector translates into a slower economy. He pointed to the debt ceiling impasse in 2011 as an instructive guide to the consequences of failing to act. In that situation, just the prospect of default forced up interest rates and slowed the economy, delaying the recovery from the recession by a year. "Financial market disruption, reduced consumer and business confidence, and slower job growth all happened when the debt limit was not increased until the very last minute," he said.
And in fact, mortgage rates did already rise slightly last week, for the first time in five weeks after the Fed announced it would delay reducing its monthly purchase of revenue bonds. New rates for the week according to Freddie Mac:
* 30-year fixed-rate mortgages: averaged 4.23 percent, with an average 0.7 point, rising from last week's 4.22 percent average. Last year at this time, 30-year rates averaged 339 percent.
* 15-year fixed-rate mortgages: averaged 3.31 percent, with an average 0.7 point, rising from last week's 3.29 percent average. Last year at this time, 15-year rates averaged 2.70 percent.
* 5-year hybrid adjustable-rate mortgages: averaged 3.05 percent, with an average 0.4 point, rising from last week's 3.03 percent average. Last year at this time, 5-year ARMs averaged 2.73 percent.
* 1-year ARMs: averaged 2.64 percent, with an average 0.4 point, rising from last week's 2.63 percent average. A year ago, 1-year ARMs averaged 2.59 percent.
Even so, rates remain low for traditional mortgages, but the folks who rely on government backed programs may have reason for concern. With USDA loans unfunded, many will be unable to close on their rural homes and may have to arrange for temporary housing. According to the USDA website, loans will still be "monitored" but; "All USDA employees will be furloughed - put on temporary leave - except those who have excepted status because they are performing emergency work involving the safety of human life or the protection of property..."
So, at least as this is written, if you are waiting for a USDA loan for a home, your wait continues. If an agreement can be reached, we can expect a return to normal in the short term but for now, uncertainty is the rule for Rural Development loans.
Trust an expert...call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.
Kim Cooper is a real estate broker and the spokesman for the Coeur d'Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d'Alene Association of Realtors, 409 W. Neider, Coeur d'Alene, ID 83815 or by calling (208) 667-0664.