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Will the Government Shutdown Kill the Real Estate Recovery?

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The economic recovery has been rather slow in 2013. The 1st quarter GDP growth was an anemic 1.1 percent GDP growth, with the 2nd quarter slightly stronger at 2.5 percent. Meanwhile, the real estate recovery has been on fire, reporting nine consecutive months of double-digit year-over-year increases, according to the National Association of Realtors. According to Springfield News-Leader, "The national median existing-home price jumped to $212,100 in August, up 14.7 percent from August 2012."

So, how will a government shutdown affect real estate? With more people being furloughed, and with sequestration cuts, will the fuel of the strongest driver of the recovery this year be extinguished?

For answers, I emailed Dr. Lawrence Yun, the chief economist of the National Association of Realtors.

Natalie Pace: Will the government shutdown affect the real estate recovery? If so, how?

Dr. Lawrence Yun: Not much impact in terms mortgage loan availability. Most mortgages will be processed as before because Fannie and Freddie will remain open. FHA loans are to be processed as well. The only negative is from a prolonged shutdown, which impacts consumer confidence negatively.

What message are you sending to Congress about the Debt Ceiling?

Avoid another 'shutdown' or default. Compromise and raise the debt limit. A default will result in higher interest rates over time. Housing is clearly an interest rate sensitive sector.

What is your general commentary on the state of the economy today, and what is needed to spark GDP growth, continue the real estate recovery and put America on the right track?

The economy is uneven and plodding along. No recession but no robust expansion either. The housing recovery has been one bright sector contributing to economic growth. We need to assure [there are] no obstacles to the housing recovery. Moreover, more home construction can provide an additional boost to the economy, as well as relieving the housing inventory shortage. For that to happen we need more construction loans. Banks are sitting on a pile of cash, yet construction loans remain very difficult to obtain, perhaps because of the excessive regulatory burden on small local banks.