|Posted by Isaiah Spates on April 8, 2011 at 11:40 AM|
As the nation climbs out of a recession, a fragile real estate market is still licking its wounds. But the looming possibility of a government shut down could mean nearly a third of those planning to buy a home will no longer be able to - at least until the Federal Housing Administration gets back up and running.In the event of a government shut down, the FHA would cease operations, and any FHA loan applicants would have to wait.
The FHA insures about a third of mortgages, and realtors say a long-term government shutdown could cause huge disruptions.
"If one deck of the cards is taken away, it's harder to make a winning hand to make a sale," said Joe Ory, board member of the New Orleans Metropolitan Association of Realtors. "And FHA is definitely a dominant force in the lending market."
"If weeks turn into months, then closings aren't going to happen, and deals are going to die," said Lewis Lederman, a Prudential Gardner realtor. "It could be very serious if it's long term."
But according to Tulane University business professor Mark Rosa, previous government shut downs have lasted less than a week on average, a period Rosa believes the housing market can withstand.
"I think three to five days would be a survivable period of time," said Rosa. "I think it would be somewhat of a nuisance more than a catastrophe."
But Ory believes the effects could be immediate.
"We don't know how to write a contract if we don't know if we're going to have that policy available in the coming days, so it could have a serious effect very quickly," said Ory.
Spring is peak buying season, and with the market starting to pick back up, realtors say the effects of a long-term shutdown could hurt not only those hoping to get an FHA-backed loan. It could hurt the economy as a whole.
"Real estate, and politicians will tell you, is the starting mechanism to get our economy back online, and anything they do to injure that market will definitely have an effect on the nation and it will slow down our economy, absolutely," said Ory.
"I'm hoping the people in Washington aren't going to let it come to that, because it's going to be bad for everybody if it does happen," said Lederman.
Realtors say FHA-backed loans account for a much bigger piece of the market now than they did the last time there was a government shut down in 1995. This time, realtors say the effect on the housing market would be much greater, especially because it's still recovering from the recession.