October Real Estate Roundup: Shutdown Update, and Return of the Buyer’s Market?

Even with the ongoing government shutdown, there’s still plenty of positive news to share. I’m here to help you and your buyers with any questions! 

Shutdown Update 

The shutdown has caused some delays, no doubt; federal workforce furloughs and permanent layoffs mean there are fewer humans on hand to manage loan tasks and systems. But agencies are working with lenders to adapt quickly and relax guidelines where possible. As of now: 

• Conventional loans have remained mostly unaffected (Fannie/Freddie don’t rely on congressional appropriations to pay staffers).  

• FHA loans also continue but with delays around transactions that require staff. 

• USDA loans have slowed or stopped, but USDA borrowers can close if a Conditional Commitment is already issued. 

• VA loans are also moving slowly, and some military and Department of Defense employees may be working without pay. That said… 

  • Active-duty military borrowers can close with a Leave and Earnings Statement (LES) dated within 120 days of the Note date for Conventional, FHA, and VA loans. 

• Closings requiring NFIP flood insurance are on hold, but if your client can get private flood insurance, that is acceptable. Also, Fannie/Freddie are accepting proof of application for the program.  

We’re actively monitoring this situation in real time. Industry groups, including the MBA, are working with lawmakers and agencies to minimize disruption, including efforts to secure an NFIP extension and protect military pay. 

And, a reminder that if you have furloughed buyers, they may still be eligible for mortgage approval and should talk to me to make a plan. Just like always, we’ll look at their employment history, previous income, credit, and any documentation for reinstatement or return-to-work date. 

The Shutdown and Interest Rates 

Historically, shutdowns meant mixed outcomes for rates: in some cases they edged down, in others they rose or stayed flat. 

Since this shutdown began, mortgage rates have held fairly steady and even fell a little last week. Mortgage rates tend to follow 10-year Treasury yields. When investors seek safer assets, demand for Treasuries may rise, pushing yields down, bringing mortgage rates down with them. 

But as the shutdown goes on, uncertainty about fiscal policy, credit risk, or government finances could push yields, and mortgage rates, higher. Just like loan tasks that need people to perform them, government data distribution requires workers. We’ve already missed the much-anticipated October jobs report (after weak numbers in the prior two months’ reports). The Federal Reserve uses that and other (delayed) reports to shape its monetary policy decisions. The next Fed meeting is scheduled for October 28-29.  Currently, most experts expect another .25% cut, but remember, that’s just to short-term rates like for credit cards, and won’t necessarily affect long-term rates immediately. I’ll keep you posted. 

A Buyers’ Market Again? 

Now let’s talk about some good news – how the tide seems to be turning in buyers’ favor. 

First, affordability is now the best in 2.5 years, based on ICE Mortgage Technology’s October Mortgage Monitor report. A few reasons they claim buyers are getting a boost: 

• September mortgage rates eased, and ICE Mortgage estimates that average P&I payments now comprise 30% of the median household income, an improvement from more than 32% early this summer and above 35% in late 2023.  

• The average credit score for purchase locks has climbed above 736, the highest recorded in six years of data. 

• Debt-to-income ratios for purchase rate locks have dropped to 38.5%, their lowest level in 2.5 years.  

• Inventory is up from last year for nearly all metros, with more modest increases where inventory has been the most constrained, including large swaths of the Northeast and Midwest. 

• Roughly a dozen of the 100 largest markets – primarily in the Midwest – have now returned to, or near, long run average home affordability levels. 

A Redfin study also says sellers are cutting their prices at a record pace. In August, 16.7% of sellers reduced asking prices, the biggest share of any August on record, with homes typically selling 3.8% below list price, the steepest average discount since 2019. 

High housing costs, rising inventory, and economic uncertainty are the big reasons sellers have had to adjust expectations, tilting the market in buyers’ favor. Single-family homes are driving the trend, with price drops becoming more common in nearly every major U.S. metro. 

I know news is constantly coming at you, and your buyers have questions. I’m here to help you feel informed and confident because no matter what the headlines say, knowledge is power, and we’re in this together!