Merry Government Shutdown! Facts & Myths; Rates Are Gonna Fall

I am a sucker for tradition – and that is why my wife and I so zealously celebrate government shutdown season every year.

We, of course, buy a shutdown tree and adorn the entire house with shutdown decorations (that are now a lot more expensive thanks to Trump’s tariffs).

But the best part of shutdown season is singing shutdown carols (Have Yourself A Merry Little Shutdown is my favorite).

Government Shutdown – A Few Important Points

I so badly wanted to avoid talking about the shutdown – but there is so much fearmongering in the news that I can’t avoid the topic.

1. We’ve been here before, and the impact was minimal. THIS is why I wanted to avoid discussing shutdowns. In 2018, we endured the longest shutdown in history (35 days) – and I remember being very worried. But the impact on the mortgage and real estate industries was minimal.
2. What’s Closed That Could Impact Mortgages? (1) Flood Insurance: FEMA is closed, so FEMA flood insurance will not be available. (2) IRS Tax Transcripts: There may be delays in getting IRS transcripts (to verify tax return are authentic). (3) USDA Loans: The USDA is closed – so no USDA loans (impacting none of our clients); (4) BK Courts Are Closed – which could impact borrowers in bankruptcy (yes, borrowers in Chapter 13 bankruptcy can get home loans). (5) Employment Verifications For Government Employees: These could be delayed, too, but Fannie, Freddie, and many lenders are making exceptions for “furloughed” employees. (6) FHA and VA Are OPEN. (7) No Government Data. We won’t be receiving government data (inflation, employment, etc.) that influences interest rates.In 2018, lenders often made exceptions when tax transcripts or employment verification weren’t available – and we’ll see that happen again.
   
3. How Long Will The Shutdown Last? The Kalshi betting site is currently predicting 11 days.
4. Other Shutdown Dates: Besides the 35-day shutdown in 2018, there were two other much shorter shutdowns that year. Prior to 2018, there was a 16-day shutdown in 2013 and a 21-day shutdown in 1995. (Note: We survived)
5. Legacy Media Lost Influence: In years past, when the government shut down, legacy media largely took the side of the Democrats. Legacy media outlets have lost influence, though, so it will be interesting to see how public opinion changes. (And no, I am not taking sides)
6. 740,000 Workers Will Be Furloughed – Stimulative or Harmful? One side makes a strong case that 740,000 workers not receiving paychecks must harm an economy that is 70% consumption-driven. The other side, however, claims that every government regulator “wipes out 140 to 160 private sector jobs” and that all government spending is really just consumption and a drag on the economy when we have government debt levels that are so high. I suspect both sides are right, but it’s a matter of timing. If the shutdown lasts 61 days, furloughed employees can be permanently laid off, but we’ll never make it to 61 days.

Rates Are Gonna Fall!

Here’s the most important part of the blog. Rates fell today largely in response to a decline in private payrolls (employment), per ADP. This is just one more in a series of weak job reports. Consumer sentiment is very weak as well.

Jeff Snider and many other analysts are adamant that these are indications of a very weak economy and that rates will fall significantly as a result – and remain low for some time.