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What if a Congressional compromise can’t be reached?

'All bets are off' on a future housing recovery: CAR

October 8, 2013

The California Association of Realtors revealed positive forward-looking data for the state’s housing market going into 2014 Tuesday, due to both demand and supply cushioning the market’s recovery.

However, during a webcast on Tuesday, C.A.R economists were thrown a challenging question: what would happen if the government shutdown continues for longer than anticipated?

Put simply, "all bets are off," explained CAR chief economist Leslie Appleton-Young.

"We haven’t done any number crunching, but if there is a full-blown government shutdown, the California housing market will be impacted by what happens to Fannie Mae, Freddie Mac and the Federal Housing Administration," she stated.

While C.A.R forecasts that U.S. gross domestic product will grow 2.4% in 2014, a continued government freeze could carry into 2014, putting a damper on housing activity.

For instance, if the federal shutdown were to go on longer than a month, GDP would be expected to drop 1%, which would affect new and existing home sales as well as unemployment numbers by a 1% to 2% drop, C.A.R analysts pointed out.

Interestingly enough, C.A.R noted during a Tuesday web conference that construction activity in California has come to a halt since the government shutdown.

"We are nowhere near supply levels to meet population growth for that — good or bad — prices are going to go up because of supply constraint," Appleton-Young said.

While it’s challenging to look into the mortgage industry crystal ball and gauge the impact or specific outcome the debt ceiling debate will have on the industry, it’s inevitable that one factor will drive or break the housing recovery: uncertainty.

"When you look at the fundamental metrics for California, we have strong demand, price appreciation and low rates, so we feel somewhat cushioned," Appleton-Young explained.

She concluded, "But if a huge traumatic event were to happen, I think that all bets will be off. We just hope Congress is able to get it together."

The bottom line: Congress needs to ask themselves a serious question: Is refusing to cross the aisle and come to a compromise worth undoing four years of recovery in both housing and the overall economy? 

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