It seems like every few months there is more Federal government drama that is going to apparently threaten everyone’s livelihood and bring down the U.S. as we know it. While the sensationalism in the media can be overwrought at times, it does bring up some valid concerns, especially for the real estate market.
What does sequestration mean?
Remember back in December the so-called Fiscal Cliff was all anyone was ever talking about? During those negotiations, Congress agreed to raise taxes, but did not act on the federal spending cuts. Instead, they opted to kick the can down the road, with March 1 as the deadline before mandatory spending cuts would automatically be enacted.
Essentially, instead of enacting purposeful and thoughtful spending cuts, we are now facing a situation where there are over 85 million dollars in sudden spending cuts across the board. Half the cuts will affect military spending; the remainder will be spread over other federal agencies.
Why is this happening?
Back in August 2011, lawmakers could not reach an agreement regarding the federal debt ceiling. Republicans were demanding spending cuts equal to the size of the debt limit. Lawmakers agreed to cut about 900 billion up front and do the rest through sequestration, intending to create an outcome so unpleasant that they would be forced to come up with a way to avoid it. With the deadline coming up tomorrow, it appears that sequestration will not be avoided as originally anticipated.
What does this mean for real estate?
The impact on the real estate market is multi-faceted. The obvious impact will be elimination or reduction in federal housing programs:
Home Affordable Foreclosure Alternatives: A Treasury program that offers short sale and deed-in-lieu of foreclosure programs to certain distressed borrowers if and only if the first lien investor that owns the note on the loan participates in the program.
Home Affordable Modification Program: A Treasury program that offers a loan modification to certain borrowers. Underwater borrowers that apply must be able to demonstrate ability to make mortgage payments on the new terms offered by the lender.
Home Affordable Refinance Program: This program rewards underwater borrowers who have continually paid their mortgage for a specified period of time with the opportunity to refinance their current mortgage at today’s lower rates. It is for Fanne Mae and Freddie Mac loans only, and borrowers must qualify for a new loan.
It will also constrain the availability of FHA (Federal Housing Administration) mortgages, which account for about a quarter of originations nationwide. The Department of Housing and Urban Development cuts will force staff reductions that could slow FHA loan approvals as well as curtail foreclosure counseling and other programs.
On a larger scale, the sequestration could make people lose confidence in the recovering economy and housing market. Experts report that if people see houses selling in their neighborhood, they are more confident in the value of their own home and loosen their pocketbooks a little more. This has accounted for the increase in consumer spending that accounts for about 70% of the economy. If people are less willing to sell due to job instability or a dip in the market, it is a slippery slope back into a recession.
Some say that this short-term dip may be a setback, a stable economy with less debt burden will be good for the housing market in the long term.
We will see how it goes in the coming weeks. Until then, the Seattle housing market is going strong. Buyers and investors are still making multiple offers on newly listed homes due to the relatively low inventory. If you are considering selling, it might be wise to get in on this action. We can help: http://www.bellevueseattlehomes.com/sell/
If you are considering buying, it might be a good time to consider your loan options before rates increase and there are fewer loan opportunities. Check out what’s out there: http://www.bellevueseattlehomes.com/