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How the Shutdown is Affecting the Real Estate Market

How the Shutdown is Affecting the Real Estate Market

As the partial government shutdown enters its second week, the real estate industry is keeping its eyes and ears open for any possible developments that could impact the sector.

While President Trump and Congress continue to lock horns over the funding of a border wall between the US and Mexico, there’s no doubt that local real estate markets will have to face numerous challenges until the shutdown is resolved. 

However, the President himself stated that he won’t be giving in, not until Congress approves a $5-billion allocation for the wall. This could only spell trouble to some 800,000 non-essential federal government workers. 

But how will this impact the real estate sector? 

What’s certain is that real estate agents, brokerages, buyers, and sellers are at the receiving end of the fallout. 

Let’s look at a few key takeaways: 

1. Slower loan applications

The Federal Housing Association has to send its employees home as a result of the shutdown. This will essentially weaken the productivity of the FHA in processing loans. Obviously, this won’t sit well for many low to middle-income homebuyers who depend on the FHA for mortgages. That being the case, an extensive shutdown will definitely weaken the local housing sectors and result in lackluster sales projections. 

2. A hike in interest rates

Some analysts point out that, as the shutdown goes on, interest rates are likely to increase. This will no doubt be exacerbated as the government nears its debt ceiling, which could further impose lending restrictions or turn away buyers who wouldn’t want to take the risk. As demand drops, so will home values. For sure, this situation will offset any gains the real estate market has incurred since its recovery from the financial crisis that had happened more than a decade ago. 

3. A tighter grip on commercial lending

Other federal programs that cater to small businesses will also be the hardest hit sectors. For instance, enterprises that apply for Rural Development loans are in dire straits by the shutdown as these loans are subsidized by the Fed. Sure enough, businesses use these loans to purchase commercial property. Considering the lending restrictions caused by the shutdown, commercial property sales are also deeply affected, resulting in a high inventory of ranches, office space, and farm lots which could drive prices down. 

There’s a lot more we can glean from the partial shutdown. It’s likely that the effect on the real estate market will become even more complex and noticeable as the shutdown drags on. The best thing to do right now is to remain vigilant and hope things will take a turn for the better.

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