Sequestration is here and it is going to affect a lot of areas of our life – some people more so than others. The initial $85 billion cuts will include furloughs for 2.1 million federal workers for five months. They will be required to take 22 unpaid days beginning in April and will end in September. This 20% reduction in pay to many people has the potential to put them behind in their mortgages resulting in an increase in default notices. This in turn could result in more short sales and foreclosures thereby affecting prices and more importantly the housing recovery. Additionally, if people are making less money, they do not have the ability to “move up” so we will continue to see a lack of inventory in housing. Worse yet, in some cases if people with security clearances fall behind with other bills, they could lose those clearances and their jobs.
Speaking of housing, FHA has acknowledged they will see delays in endorsements/claims time frames which will impact settlement dates because of getting loans not being completed in time for closing. FHA is responsible for approximately 25% of loans so this is a big deal and you should pay attention to your closing dates. Along these same lines, cuts in the Department of Agriculture will mean there will be delays in the processing of USDA loans. These loans typically take a minimum of 75 days – I would encourage you to look at a minimum of 90 days to be safe.
In addition, people who rely on Federal Housing Assistance are going to lose their benefits which would leave them homeless. These people include veterans and the disabled. One other area that is affected is foreclosure prevention aid to nearly 75,000 people – keep an eye on this development. People who receive Housing Choice Vouchers will be cut. These vouchers are used for renting apartments. Approximately 125,000 will be affected here potentially leaving them homeless.
A majority of the cuts will come from defense spending. It is estimated that nearly 207,000 Virginians will lose their jobs with 75% of those residing in Northern Virginia. California will also lose a total of over 200,000 jobs with Maryland not far behind with over 100,000 jobs lost. In totality, it has been predicted 2.14 million people would become unemployed as a result of sequestration. There will be unintended consequences resulting from these cuts which will total $1.2 trillion by 2021. One area that comes to mind is travel by air. Fewer air traffic controllers and fewer TSA employees will result in delays at the airports for sure. Another area is Hurricane Sandy victims, their aid will be diminished as well. Lastly, when the hardworking, lower middle class government workers get 20% of their income slashed, there will be less discretionary spending which could have broad sweeping consequences – let’s see what else will be impacted.