The prospect of making a down payment and securing a mortgage became even more difficult for federal employees who have gone without a paycheck for the last five weeks and remain in financial limbo with the temporary reopening of the government.
Roughly 800,000 federal workers around the country were either furloughed or working without pay over the last month during the partial government shutdown, and although it has now temporarily opened until February 15, it remains unclear when employees will receive paychecks and whether the reopening will become permanent. About 18 percent of the unpaid workers (144,000) live in Washington, D.C., and a small share of them are actively looking to buy new homes—or at least, they were before the shutdown started on December 22.
Buyers are battling financial uncertainty
David Ehrenberg, a Redfin agent in the District, said the shutdown has impacted many of his clients either directly or indirectly. While most home loans aren’t backed by the government, it is more difficult for homebuyers to secure mortgages when they’re not receiving a paycheck, and the partial closure of the IRS was a roadblock for buyers who needed to provide tax information as proof of income.
“I have one client who planned to purchase his first home before the busy spring season, but he’s had to put off the mortgage pre-approval process because he was furloughed,” Ehrenberg said. “Another couple is looking to move from their rowhouse into a larger home to make room for their growing family, but both of them work for the federal government and only one of them has been receiving a paycheck. They’re concerned that under the circumstances, they won’t qualify for a home in the price range they know they can afford.”
Homebuyers in northern Virginia have also expressed concern over the uncertainty surrounding the shutdown.
“I’m representing a couple that was originally looking to buy a home in the outskirts of Washington, D.C. sometime in the next few months. But the husband is a government employee who was furloughed and they’re putting off their search due to financial uncertainty,” said Redfin agent Kendell Walker. “His wife is waiting to secure a job until after they buy a house because she wants to work close to home, so the shutdown has affected both the home search and the job search.”
Steve Popovitch, another Redfin agent in northern Virginia, said he has a client who’s in the process of purchasing a foreclosed home using a USDA loan, which don’t require down payments. Because the USDA hasn’t been fully operational over the last month, approval of the buyer’s application is delayed indefinitely. The original contract for the home sale had a 14-day deadline for the financing contingency, and while Popovitch was able to extend the deadline to 35 days, it’s still uncertain whether the financing from the USDA will come through before the deadline. “The buyer would have other loan options, but the USDA is really the best option from a financial standpoint,” Popovitch said.
There was a silver lining for some buyers. Ehrenberg said a couple he met at a Redfin homebuying class in the beginning of January began speeding up their home search because they were furloughed employees. “They were both off work, so they decided to think about buying sooner rather than later because they had time to search,” he said.
Not every government employee has the financial means to buy a home while they’re not being paid, but that particular couple was able to take advantage of their time off.
Some sellers are in a holding pattern
Redfin agent Candace Bush said she has clients in northern Virginia who were planning to sell their home and move to a different city, but they put their plans on hold due to financial uncertainty. “My clients have postponed their listing date from February 1 to March 1,” Bush said. “They’re worried that ongoing effects of the shutdown will make it more difficult to sell their home.”
Buyers putting their searches on hold has also affected sellers who may not be receiving as many offers for their home as they normally would. But if the government reopens permanently, the shutdown could contribute to a more competitive spring market, which would benefit sellers at that time.
But Redfin data shows that home prices in the Washington, D.C., area are continuing to climb, up 3.6 percent year over year for the week ending on January 13, while inventory was down 1 percent. The number of homes sold, meanwhile, was up 1 percent annually for the week ending on January 6, the last week for which data is available for that metric.
“A lot of homebuyers in the Washington, D.C. area who have been affected by the shutdown still want to buy, but they’ve had to put their purchase on hold because of delayed paychecks and government services that have been unavailable,” said Redfin chief economist Daryl Fairweather. “As a result, some sales that would have happened in the beginning of the year will be postponed by at least a month or two, depending on whether today’s reopening becomes permanent.”
Updated on July 15th, 2019