Will US budget problems affect the US real estate market?

Over the last few months we have seen an improvement in the US real estate market with an array of previously unloved state property markets coming back to life. In some ways this did help to support the US economy although recent issues with regards to the US budget have impacted the running of day-to-day services and hit the headlines around the world.

Many people are now starting to ask whether US budget problems could impact the ongoing recovery of the US real estate market and if so to what extent.

US budget games

While the recent partial shutdown of US government services obviously made headline news around the world the warring political parties finally came together to agree a short-term deal. This was not before we saw the financial press discussing a full shutdown of US government services and the impact that a potential default, whether real or theoretical, would have had on the US government’s debt rating and worldwide economy. So was the threat real or were these political mind games of the highest order?

Quote from PropertyForum.com : “Despite the fact that the US Federal Reserve had initially indicated that it was looking to reduce the $85 billion a month stimulus program there was apparently an about-turn with decision time looming”

You only really need to look at worldwide stock markets to understand that the US government was never going to go into full shutdown and it was inconceivable that it would default on its debt. However, this challenging episode in the history of the US budget games will not have done anything for confidence that a long-term arrangement can be agreed before January. It seems highly likely that we will go through a similar experience towards the end of January 2014 when the current debt ceiling is maxed out again.

Stalling momentum

In many ways the US property market, like many others around the world, is benefiting from a lack of supply and growing demand for assets across various US states. We have even seen some of the more financially challenged US states attracting the interest of both domestic and overseas property investors. The US budget games have not really had an impact upon this market as yet but there is no doubt that investors will grow wary of ongoing challenges and ongoing disagreements which potentially push the US government to the very edge of the precipice.

One issue which may come to a head as we approach January 2014, and the new US budget debt discussions, is that more people may look to cash in on the growing momentum and price rises in US real estate. This could lead to a short-term stalling of current momentum and indeed if further budget disagreements were to impact even slightly upon expected US economic growth in the short to medium term this could be yet another reason for sellers to come out of the closet.

Conclusion

The various US political parties involved in the recent budget brinksmanship have not helped their reputations in the short to medium term. While worldwide stock markets showed very little concern at the budget discussions it does not exactly cast the US political system in a good light. This time there has been relatively little damage to momentum or indeed confidence in the US real estate market but the recovery is still fairly fragile.

Any more political poker as we approach the January 2014 budget discussions will not go down well with both domestic and international investors!