You Betcha! (As someone used to say!)
Sequestration will affect real estate nationally to varying degrees. Some regions will be hit harder than others, but the DC metro area will not be immune.
I recently had multiple offers on a property in Northern Virginia. There were supposed to be five offers, but then suddenly there were only 4 offers. What happened to that other offer? The buyer got cold feet because he was active military and buying with a VA loan. Fear alone could shut down this real estate recovery!
This fear could not come at a less opportune time. The real estate market is just starting to recover and it is spring. Everyone is shaking off the winter doldrums. The holidays are over. The Super Bowl is over! Buyers, sellers and real estate agents have been looking forward to spring.
Fear may keep some buyers out of the market, but there are other impacts from sequestration. The normal mortgage approval process is vulnerable to sequestration.
Two basics of real estate financing are vulnerable:
1. FHA etc.: Even theDC housing market is dependent on government programs like FHA, which must approve mortgages once the lender’s underwriter signs off on the loan. At a minimum, sequestration can lead to layoffs of government employees. Delays in the approval process are likely.
2. Income: Underwriter’s verification of income occurs more than once in the loan approval process. Sequestration layoffs will begin with government employees and spread as money is taken out of the economy. This means pay stubs of effected employees will no longer document their normal income. This can create a negative impact on debt-to-income ratios. Since underwriters check income one more time just prior to closing, approved loans could be in jeopardy.
TIP for Buyers: Discuss the above with your real estate agent. You need to protect yourself should there be delays in the approval process or even an unexpected inability to secure a mortgage during the crisis.
TIP for sellers: Discuss the above with your real estate agent. You need to be prepared should sequestration negatively impact the sale of your home. Prepare for contingencies and don’t over commit yourself should the sale of your home be delayed or even fall through.