Shutdown chipping away at confidence in housing market 

The ongoing federal government shutdown is having real-world impacts on homebuying, two new surveys revealed this week.

Agents are reporting that some transactions have been put on hold or even scrapped due to delays in receiving government-sponsored loans or flood insurance, according to a member feedback survey from the National Association of Realtors. More than 600 agents from all 50 states, the District of Columbia and Puerto Rico shared their personal stories with NAR.

Meanwhile, a Redfin survey of more than 1,000 Americans conducted on Nov. 3-4 found that 45% of U.S. consumers say they are less likely to make a major purchase like a home or car during the shutdown. That's up from 21% in early October, shortly after the shutdown began.

Shutdown-related concerns are also affecting overall consumer sentiment, according to the University of Michigan's monthly survey. The latest Consumer Sentiment Index, released Nov. 7, was at 50.3, the second lowest level since at least 1978.

What agents are seeing

NAR's "Call For Action" survey asked members to share examples of how the government shutdown was affecting their clients, businesses and communities. Delays related to USDA, VA and FHA loan programs, as well as flood insurance programs, were most frequently cited as having an impact. NAR members responded with more than 60 stories highlighting hardships resulting from those delays, the association noted. 

According to a member agent in North Carolina, for example, some communities in the state — particularly in coastal or rural areas — are extremely reliant on flood insurance renewals and USDA loan approvals, leading to closing delays or contract cancellations. While the hurricane season was quiet this year for the U.S. mainland, North Carolina coastal areas were impacted by tidal surges from offshore systems in the past month.

Flood insurance delays 'a train wreck' for closings

Most of the responses in the NAR survey came from high-population states including Florida, Texas and California — states where flood insurance is mandatory in many areas for homes with mortgages. 

A California agent wrote that "obtaining flood insurance has become a major problem, so having sources available from the government has allowed us to close our escrows. However, without these options, due to the shutdown, it's a train wreck for our escrows leaving us with delays and obstacles to struggle to get our escrows closed."

The overall theme of the feedback was that the shutdown has taken a toll on confidence and caused some deals to collapse. "The financial strain is real, the morale is low, and the longer this continues, the harder recovery will be for working families and small businesses alike," the North Carolina agent said.

Consumers not expecting 'better times ahead'

In reference to the Univ. of Michigan sentiment index, NAR Chief Economist Lawrence Yun wrote on LinkedIn that "The government shutdown immediately emptied some pocketbooks and evidently does not inspire better times ahead."

That appears to be showing up in open house activity. Yun noted that some Realtors have seen a steady stream of potential buyers visiting open houses — "like 40, 50, or even 80. Yet no one is making an offer."

While seasonality is at play, "those same experienced Realtors told me they have never seen anything like this of many visitors but no offers," Yun wrote.

"The weak consumer sentiment is no doubt casting hesitation on such a major purchase."

Changing purchase plans, missing payments

Yun's observations are consistent with the Redfin survey, which found that 21% of respondents were delaying a major purchase (up from 17% at the beginning of the shutdown), while 15% had canceled plans to make such a purchase (up from 7%).

Another shutdown impact? A hit to personal finances. More than a third of the consumers surveyed said they were doing worse financially because of the shutdown — something that could contribute to more homeowners struggling to keep up with house payments.

Of the 745 Redfin respondents with a monthly mortgage or rent payment, 20% said they have missed or were late on a payment in the past three months, while 24% said they expect to miss or be late on a payment in the next three months.

A temporary problem?

Many analysts expect gross domestic product in the fourth quarter to be significantly impacted by the shutdown. If it is resolved before the end of the year, GDP should bounce back in the first quarter, however.

"Similarly, for the housing market, any delayed demand will likely come back when the government re-opens," said Chen Zhao, who heads the economics research team at Redfin, in a blog post.