While the government shutdown has hampered the progression of the housing sector, it appears to have neglected October asking prices. According to the Trulia Price Monitor, asking prices are trending in real time, adjusting for both the mix of listed homes and seasonality. A seasonally adjusted average, reflecting the period between September and the first half of October, has revealed a one percent increase in asking home prices. Subsequently, the October increase is on par with what analysts predicted before the shutdown took place.
The trend we are currently witnessing, specifically regarding asking prices on a national level, is the result of several factors that were in place prior to the shutdown. Before the shutdown, price gains were showing signs of tapering because of increasing inventory levels, higher mortgage rates, and declining investor activity. Essentially, asking prices are on the same path they were prior to the government shutdown. Comparing how much prices have risen in October to that of previous months can’t, by itself, show whether the shutdown has affected asking prices.
To better understand the government shutdown’s impact on asking prices, or lack there of, Trulia evaluated price trends across individual metros. More specifically, however, the popular valuation site proceeded to focus on regions in which the local economy is more dependent on the federal government. Conversely, the Trulia study compared these respective cities with those that are less dependent on government activity. The study differentiates government dependency based on the share of local wages originating from the feds.
According to Jed Kolko, Trulia’s Chief Economist, “metro-level asking home-price changes in the first half of October were uncorrelated with the local economic impact of the shutdown.”
Correlations and some simple regressions, controlling for past price changes, show no relationship between asking home price changes and how much of local wages come from the federal government. Quite simply, the government has yet to impact the asking price of homes on a national level. Remember, based on their theory, metros with a high dependency on government activity should have experienced a bigger impact in asking prices. This is simply not the case.
While the government shutdown has yet to impact asking prices, the mortgage application process is not so lucky. The lack of involvement by the Internal Revenue Service (IRS) has stalled the mortgage application process. A distinct inability to preform background checks makes it increasingly difficult for loans to progress through the system.
The delay in data releases, like the jobs report and tomorrow’s home-starts report, creates more uncertainty about the pace of the housing recovery. However, expected to have a much larger impact on the housing sector, is the United State’s potential to default on its debt. While a prolonged shutdown and a debt default are looking less likely, each threatens the housing sector’s recovery.
It looks as if the housing sector recovery will be defined by the following:
- Fed’s Acquisition of Securities: While the Federal Reserve intends to taper their purchases of securities, it should not occur until the recovery is in a sustainable state. Once they ease their purchases, mortgage rates are likely to rise, making it more difficult for prospective homeowners.
- New Budget Negotiations: As of today, it looks like the agreement to end the shutdown and raise the debt ceiling will trigger a new round of negotiations over longer-term federal budget reforms. This could potentially raise the cost of homeownership while reducing the budget deficit.
- Fannie & Freddie Reform: This will largely impact whether or not the government proceeds to keep 30-year fixed-rate mortgages relatively cheap and widely available.
Even if the shutdown and debt ceiling debate are resolved soon, the housing recovery will continue to depend on what happens next in Washington.