A potential government shutdown was avoided today following President Joe Biden signing off on legislation late Friday afternoon, extending government funding until Feb. 18. The bill-signing came following an eleventh-hour decision by Congress Thursday, before heading to the president’s desk today.
The move also averted potentially devastating impacts on the real estate industry.
December will be a busy time for lawmakers who still have another critical fiscal decision regarding the government’s debt limit, which is less than two weeks away, and efforts to pass the Build Back Better Act before the end of the year.
Democrats and Republicans hashed out a deal in October to temporarily extend the federal borrowing limit until Dec. 15 to avoid a looming default that would have dealt a crippling blow to the nation’s recovering economy.
With more than $8 trillion in mortgage debt backed by the federal government, the real estate industry is highly susceptible to market instability, according to an October statement from the National Association of REALTORS® (NAR) regarding debt ceiling negotiations.
At the time, NAR President Charlie Oppler encouraged Congress to continue working on a long-term debt ceiling.
“A debt default would unleash unnecessary and unknown harm on the economy and our 1.5 million members, most of whom are small business owners,” Oppler said.
The stakes of a deal not being reached are massive in real estate, says Matthew Gardner, chief economist at Seattle-based Windermere Real Estate.
“All of a sudden, if that occurs, then the full faith of the United States government disappears,” Gardner says, indicating that people would likely dump their holdings of treasury bills which could lead to a substantial surge in mortgage rates.
“You want to get back up to 18% mortgages again; that’s the way to do it,” Gardner continues. “Bottom line is if there is no trust in the government to get paid on your holdings of their debt, then you’re going to dump it, and there will be no buyers out there for it—at least not at the interest rate that would be normalized. Because of that, you’ll find that those yields will have to skyrocket to attract any form of would-be investors.”
While Gardner acknowledges that a federal default would be “a very scary situation to be in,” he isn’t ready to sound the alarms yet.
“We’ve hit the ceiling any number of times, and it’s one of those bizarre things where everyone gets worried about it, and miraculously at the last minute, it gets fixed,” he says.
Jordan Grice is RISMedia’s associate online editor. Email him your real estate news ideas to jgrice@rismedia.com.
