The Real Estate Industry Will Feel the Sequester

All along, I thought that the politicians in Washington will reach a last minute agreement on the Federal budget to avoid sequestration or more likely kick the can down the road again. Well, I was wrong. The entrenched positions proved to be unshakable  even in the face of many calls of doom and gloom. Unless a bipartisan compromise is reached fairly soon, we are all bound to feel the ripples in the real estate markets. 

Have no doubts about it. An $85 billion in automatic spending cuts will leave its mark on the real estate industry. While the financial blow may not be so big, the psychological impact will be significant. The consumer’s fragile mood can quickly turn less optimistic, when the news of layoffs and furloughs start to come in. So what are we likely to see happen in the real estate industry? Here are some of the repercussions:

1. Home buyers, housing developers and lenders will start taking more of a wait and see     attitude, which will effectively slow down the real estate markets.
2. The rise in home price will slow down, but don’t expect a decline.
3. Some Hurricane Sandy victims may have to wait even longer for a lifeline.
4. Expect an increase in the number of short sales and an increase in foreclosure filings.
5. According to HUD, sequestration could result in 75,000 fewer households receiving foreclosure prevention aid and counseling services.
6. Sequestration may also result in the cancellation of about $4 billion worth of publicly funded construction projects, according to GlobeSt.com.
7. The FHA may be forced to cut back on staff, which will slow down the processing of new home loans and mortgage refinances.
8. Housing developments in Washington, DC and Northern Virginia will be hit hard.

In my opinion, politicians in Washington, have no choice but to come to some kind of a bipartisan agreement real soon. Each side has waited for the other side to blink but it never happened. So now, they know better. If they continue down this path of no compromise, things will only get worst with other budget deadlines looming. It’s pretty straight forward, remain uncompromising and risk the economy and the wrath of the American people or show some flexibility and walk out of this one with less egg on your face.