Curious Capitalist

Money Talking: The First Economic Victim of the Shutdown

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Aside from the furloughed federal workers, the housing recovery may be the first economic victim of the government shutdown. Over the last two years, housing has gone from being a headwind to a major boon to U.S. economic growth. As Warren Buffett once told me, “if we can fix housing, we can fix the economy.” But the shutdown has put the majority of the IRS as well as a good chunk of the Federal Housing Administration out of work. If they can’t process data, mortgages can’t move through the system, and homebuyers could potentially get stuck in limbo. That’s why the nascent housing recovery could be in danger.

“Lenders processing loans that need tax transcripts, social security number verification, or FHA home loans face longer delays and reduced functionality from HUD, IRS, and the Social Security Administration,” says David H. Stevens, the president and CEO of the Mortgage Bankers Association, who yesterday called for an end to the shutdown, citing “confusion and fear among borrowers about whether they will be able to close on a home purchase or refinance.” He added, that there were significant impacts on multifamily lenders, as well as rental housing properties that need FHA financing. “The furloughs can disrupt time-sensitive mortgage transaction deals by interfering with borrower lock agreements and causing interest rate disparities from the time of closing to the time the loan is securitized.”

While it’s too early to say what the overall economic consequences will be, housing is one of the most important factors in economic growth right now—not only because of the direct effect of home building on the economy, but also because of related retail spending on everything from furniture to consumer goods. There’s also the increase in the “wealth effect” that makes consumers more likely to continue spending as their home prices go up. (Housing prices, much more than stocks, bolster the wealth effect, since the majority of Americans still hold the majority of their worth in their homes.) For more on the economic impact of the shutdown, and what it might mean for you, listen to my weekly radio show on WNYC.