Housing recovery took a minor hit during government shutdown

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While the housing forecast remains mostly unchanged, the contentious negotiations that led to Congress temporarily raising the debt ceiling may have a lingering impact on consumer confidence in the housing market.

Consequently, the housing recovery will be temporarily interrupted, but not derailed, according to Fannie Mae’srecent outlook.

“Our October economic and housing forecast is largely unchanged from the previous forecast as we anticipated the modest levels of consumer spending seen toward the end of the third quarter,” said Fannie Mae chief economist Doug Duncan.

He added, “However, fiscal uncertainties associated with the federal government shutdown, the protracted negotiations to raise the debt ceiling, and the timing of the Federal Reserve’s tapering of its asset purchase program, pose significant downside risks to economic activity in the current quarter.”

Nonetheless, recent declines in long-term interest rates should help support the housing market. Mortgage rates will continue to gradually rise, averaging 4.4% in the fourth quarter and 5% a year from now.

Meanwhile, incoming housing indicators remain generally positive.

For instance, existing homes sales rose to their highest level in more than six months, reflecting a rush to buy before mortgage rates rose even further.

Homebuilder confidence also remains at a recovery high, with the measure of prospective buyer traffic gaining again, despite continued rising mortgage rates, Fannie Mae noted.

While the shutdown lasted nearly a month, it’s important to note the mortgage market took a slight hit.

The Federal Housing Administration continued processing new loans during the shutdown, despite a lack of staff. Lenders with delegated authority also continued to endorse new loans independent of the agency, making it easier now for the FHA to catch up.

Nevertheless, the shutdown will likely have a future impact on housing activity, including the pace of FHA endorsements for small lenders as well as Ginnie Mae issuance.

Additionally, industry players may experience shutdown-related processing issues or exercise caution amid uncertainty, Duncan explained.

As a result of the fiscal events and the slowing momentum in economic activity from the second quarter to the third quarter, full-year growth is expected to come in at 1.9%, a downgrade from market expectations.

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