Will the Government Shutdown Sink Housing Sales?

There are a lot of unknowns right now related to what the government shutdown will affect and what it won't. Not surprisingly, people have started asking the questions of how the government shutdown will affect housing sales. While there is no yes or no answer to this questions, we can make a few predictions about the effect of the government shutdown on the housing market.

Short term effects of the government shutdown

In the short term, there won't be much noticeable effect on the housing market due to the government shutdown. VA, Fannie Mae, and Freddie Mac are still open and most loans in the pipeline should close without any delays. With the exception of USDA Rural Development which is closed, lenders are still taking applications, locking rates, processing and closing.

Long term effects of government shutdown

There is a problem looming, however. In the post housing bubble regulatory frenzy the authorities decided that ALL borrowers must produce two years of tax returns and not just true copies from your CPA , but actual transcripts from the IRS. Therein is the problem. The IRS is closed. Normally we'd cheer to hear those words, but if the shutdown lingers, lenders will not be able to get transcripts and this could impact all types of loans. When the IRS reopens there will be a backlog of requests which will gum up the works for some time and housing sales will suffer if only from expired rate locks. However, most lenders are closing without actual transcripts with verification to follow closing.

We are all hoping the dysfunctionality in Washington abates for a while and adult, clear-headed lawmakers emerge to take the consequences of their inaction seriously. Torpedoing the recovering housing market could very well sink the entire economic recovery.