The 16-day government shutdown has come to a close thanks to President Obama signing a piece of legislation. This legislation was signed just before the federal government would have to default on its financial obligations.
The economy, housing market and mortgage lenders dodged a bullet, but it seems like only a temporary one. If a default should occur, this could be a major hit for the housing market and mortgage rates due to the stimulus provided by the federal government.
With a strongly divided government, there is little promise of preventing a similar government default in just a few months. The new piece of legislation only funds the government until January 15 and allows the treasury to borrow above the debt limit until February 7.
There is still a major political fight going on to reach a solution between party lines. But if it is anything like the recent shutdown, there is going to be more fingers pointed than actual problem solving.
A surprise by the United States Stock Market occurred the day after the government reopened. It saw a drop the morning after the shutdown –indicating that people do not feel confident that the federal government has its finances under control just yet.
Also slightly surprising was the drop in mortgage rates. Many economists expected an increase in mortgage rates because they expected an increase in U.S. treasury yields. While there seems to be no clear indicator of why both yields and rates fell, economists suggest that it may be due to the realization that this fiscal crisis is not over. It has just been postponed a few months.
The Federal Reserve may be part of why mortgage rates are staying low. The tapering of economic stimulus provided by the Federal Reserve seems to be taken off the table for now.