During last month’s 16-day government shutdown, the business of New York City real estate appeared to operate mostly as normal, with apartments being shown and closings taking place. Nonetheless, the crisis likely damaged the housing market — at least temporarily, industry experts told The Real Deal.
The shutdown, stemming from a showdown between Republicans and Democrats over health care legislation, began on October 1 and lasted until the early hours of October 17, when Congress voted to reopen the federal government and raise the nation’s borrowing limit.
The decision came just in time to avert a financial default, in which the Treasury Department would have run out of money to pay the nation’s debt obligations.
Since the end of the shutdown, furloughed government workers have gone back to work, while government-run tourist spots have reopened. Many New Yorkers turned their attention to spotting the newest works by Banksy, the anonymous British graffiti artist who did a “residency” in New York last month. (While in town, Banksy also slammed the design of the new One World Trade Center, calling it a “shyscraper.”)
But the effect of the stalemate — which took an estimated $24 billion out of the United States economy, according to the financial ratings agency Standard & Poor’s — on the housing market could be longer-lasting, sources said.
First, the Congressional impasse caused credit to tighten as lenders proceeded with caution, fearing the economic results of the debacle.
Even before the shutdown, “many lenders [had] begun to move slowly,” said Lee Williams, a broker at Rutenberg Realty, adding that they were operating “from a place of uncertainty.”
And while the immediate crisis has passed, the uncertainty isn’t over: Congress only raised the debt ceiling until February, and Williams said industry insiders are concerned about another battle occurring then.
Uncertainty on the lenders’ part makes it more difficult for home buyers to get mortgages, which in turn could delay the housing market’s recovery by “a few quarters,” said Jonathan Miller, president of the appraisal firm Miller Samuel.
He said federal litigation with large banks — such as JPMorgan Chase’s record $13 billion settlement over mortgage-backed securities — is further delaying the easing of credit.
The national housing market is “already weak, and [these factors are] keeping the conditions weak,” he said.
Closer to home, New York City real estate brokers said the drama in Washington slowed the pace of sales in October, with home seekers hesitant to buy and sellers reluctant to put their apartments on the market.
“There is an expectation [among buyers] that a default would have a catastrophic effect on the global economy, and the New York City real estate market as an extension,” said Jeff Schleider, the founder of the brokerage Miron Properties.
As a result, he said, several of his firm’s clients delayed putting in offers or signing contracts during the crisis.
Luckily, there has been an uptick in deal volume at the firm now that government shutdown is over, he said.
Michael Signet, the director of sales at Bond New York, said he witnessed a similar phenomenon.
“This business is about perception,” he said, adding that the shutdown and possibility of the U.S. defaulting on its loans gave “the public the perception that the economy is heading in the wrong direction and that now is a good time to hunker down, hold onto their cash and wait it out.”
With the crisis over, Signet said, that perception “vanished pretty quickly,” however.
The full impact of how the slowdown impacted deal volume in the third quarter won’t be known until market reports comes out in January, Miller said.