The housing market is just four days away from facing a massive disruption that could delay thousands of home closings in an already tight market.
The government is poised to shut down at midnight on Saturday with Congress divided on how to avert a federal closure. While the Senate is moving ahead with its bipartisan stopgap measure that would temporarily fund federal agencies until November 17, there’s little to no chance that the House would bring that bill to the floor in its current form. Even if it did, House Speaker Kevin McCarthy is expected to struggle to get enough votes to pass it.
With the shutdown looming , many are preparing for a vast variety of federal programs and services to halt, including the National Flood Insurance Program (NFIP) which nearly 5 million homeowners use to protect themselves from the financial risks of flooding. Most homes and and businesses need to have home insurance in order to take out a mortgage and flood insurance is required for those living or operating in high-risk flood areas with government-baked mortgages.
Because the Federal Emergency Management Agency (FEMA) announced in December that its NFIP would no longer issue new policies during a funding lapse, a government shutdown could cause a major disruption for the housing market.
The National Home Builder Association (NHBA) estimates that 1,300 property sales will be impacted every day by an NFIP lapse.
“If the NFIP can’t issue new policies, thousands of real estate closings requiring flood coverage could be derailed across the U.S.,” Mark Friedlander, the director of corporate communications at the Insurance Information Institute, told Newsweek . “This scenario is very concerning as we have two months remaining in the 2023 Atlantic hurricane season and continue to experience significant coastal and inland flooding from named storms impacting the U.S.”
This current hurricane season is already on track to be above normal, according to the National Oceanic and Atmospheric Administration. Since the season began in June, there have been 11 billion-dollar weather and climate disasters, NOAA data shows.
Industry groups like the NAHB and the National Realtors Association (NAR) have called on Congress to quickly extend the NFIP’s funding before it expires on September 30, warning that a government closure could hurt the real estate sector, which accounts for nearly 20 percent of the U.S. economy.
“What the housing market needs now is stability and certainty,” the NAHB told lawmakers in a Tuesday letter sent to House and Senate leaders. “Uncertainty over whether the NFIP will lapse, coupled with the growing possibility of a government shutdown, may have a significant negative economic effect on home builders, home buyers and renters.”
Various economic headwinds have already made it more difficult for Americans to buy property in recent years. Mortgage interest rates hit the highest level since December 2000 last week, increasing to 7.41 percent in the week ending September 22, according to a Mortgage Bankers Association report released Tuesday. Those skyrocketing rates have driven mortgage demand down to a 27-year low.
“To this end, we urge Congress to consider the effects of a government shutdown on federal programs that directly support the construction of new housing, help buyers or renters access housing, or provide federal permits that may be required for construction,” the NAHB wrote on Tuesday.
Senator Bill Cassidy , who introduced a bipartisan bill in June that would reauthorize the NFIP for five years, told Newsweek in a statement that the current program is “unfair” because of the obstacles it presents homeowners.
“From a Louisiana perspective, NFIP allows working families to live where they need to work. This is critical to the industries producing the fuels, chemicals, and plastics that support the rest of the U.S. economy. The current program is unfair to these homeowners in terms of the lack of transparency and possibly the poor calculation of risk,” Cassidy said.
NAR noted that since 2017, NFIP’s authority to write flood insurance has been extended 25 times, suggesting that it would be possible for lawmakers to once again step in and allow the program to issue new policies for prospective home buyers.
“It is important to put this possible shutdown in perspective,” NAR Chief Advocacy Officer Shannon McGahn said in a Tuesday statement. “The U.S. has lived through 22 government shutdowns in the last 50 years. The longer the shutdown, the more harm done.”
“One thing is for sure: In a shutdown, no one wins,” McGahn said.
Update 09/27/23, 11:38 a.m. ET: This article was updated with comment from Senator Bill Cassidy.