Government Shutdown on the Doorstep while Debt Ceiling Looms

The next several weeks will be all about the U.S. government, and this time we aren’t talking Federal Reserve. First up, we have a clash between House Republicans, Senate Democrats, and President Barack Obama on a resolution to continue funding the government.

The resolution in question is a fairly standard government funding process, but partisan bickering over the Affordable Care Act (known as Obamacare) has brought the bill into the national spotlight.

House Republicans have passed the “continuing resolution,” but have also tacked on a delay for the implementation of the health care law and a defunding initiative.

Senate Democrats reject the Affordable Care edits, and are lobbying for a “clean bill” that deals solely with the government budget.

The two sides have until midnight to figure something out or the government will lose its funding for the first time in seventeen years. The repercussions aren’t completely severe (“it’s business as usual for the most essential functions of government”), but there will be definite negative economic repercussions. One estimate pegs each week of government shutdown to a loss of 0.15% in economic growth over a year.

Read this article on CNBC for an overview of the process.

Next, we turn to an October 17 deadline for raising the government debt ceiling, so that the U.S. can borrow the funds necessary to pay off its debts. Failure to do so results in default. This process has markets seriously concerned.

From a CNBC overview of the issue:

Treasury bonds are viewed as the bedrock of financial markets, thanks largely to the assumption that the United States will always pay its debts. Most analysts say that if that were thrown into question, the consequences would be catastrophic, and largely unpredictable.

Sudeep Reddy at the Wall Street Journal wrote, “If a shutdown represents a controlled pullback, a default would be its homicidal, out-of-control cousin.”

The debt ceiling debate has been ongoing for several years now. Beginning in 2011, a Republic-led initiative tied debt ceiling increases to deficit reduction measures. The debate carried over to the “fiscal cliff” battle (remember that?) at the end of 2012.

Once again, it looks as though the debt ceiling process will be politicized.

This is partly why markets dropped to begin the trading day. Though the immediate effects of a government shutdown won’t be too severe, markets are concerned that the funding fight is a precursor to the debt ceiling debate – the consequences of which are much steeper.

Global markets would seize up, 32% of government spending would be cut (by one estimate), consumer confidence would plummet, interest rates would jump for the financial system. (And this is the best case scenario… scroll down in this Atlantic article for the worst)

[Read this Wall Street Journal article and this Atlantic article for more information.]

What happens to the housing market through all of this?

Well, in the event of a government shutdown, mortgage markets and real estate would be generally supported in the short term. Though, this doesn’t measure the effect that shaken consumer confidence can have on demand for real estate.

In recent times of economic uncertainty mortgage rates have done well, as investors buy into the “safe haven” of U.S. government-backed bonds. When the U.S. bond market (especially U.S. Treasuries and mortgage-backed securities) improves, mortgage rates feel downward pressure.

However, with the ability of the U.S. government to pay off its debt in question, the bond market looks a little less safe. And if the U.S. government defaults on its debts, mortgage rates will skyrocket as the bond market plummets and the cost of borrowing jumps.


We will be tracking the whole process on Check in with us for more updates. 

Central Coast Lending is a California mortgage brokerage based in San Luis Obispo County. With offices in San Luis Obispo, Morro Bay, Paso Robles, and Arroyo Grande, Central Coast Lending is the top source for Central Coast mortgage, real estate, and home loan needs. 


New Listing! 1585 Hogan Court, Nipomo


Welcome to Legends at Black Lake Golf Resort – 55 and over. This beautiful 3
bedroom, 2 bath home overlooks the fairway and is nestled in a quiet,
well-maintained neighborhood. Sun light shines throughout the open floor plan —
all the while highlighting the stunning backyard patio where you’ll enjoy your
morning cup of coffee or evening glass of wine. Marvel at the abundance of
hummingbirds in your own back yard. Golf cart included in sale.

Santa Margarita and Savor the Central Coast

Savor the Central Coast happens this weekend in the charming and historic little hamlet of Santa Margarita.  This is a fun wine and food event for certain but if you are heading there you must take the tour given by the docents at Santa Margarita Rancho which is the site of the event.  Also try to get a peek inside the large barn that wraps around and protects the ‘assistancia’ that is still very much standing.  It is a beautiful historic creation that is worthy of a Ralph Loren ad!  Assistancia loosely translates as the midway Spanish Mission that once supported the Missions of San Luis Obispo and San Miguel. The ranch house is a bit of the old west and I can just picture being on the ranch 100 years ago……enjoying the pristine vistas that flavor this gorgeous county.

New Listing! 314 Pacific Ave., Paso Robles


Wonderfully well-kept Westside Paso Robles home is ready for wine country
entertaining! The large kitchen w/gorgeous granite counters, pantry and
breakfast bar opens to the warm toned living/dining areas. This super clean home
is ready for company. The large, flat backyard takes full advantage of all our
North County outdoor living, having just enough grass plus grapes and tomatoes.
The handsome canopied outdoor living room and outdoor kitchen have water,
electricity and even music! There is a built-in fire pit for chilly weather or
s’mores and is perfect for watching local wild life, stars and sunsets over the
back fence. Gates have 10′ gate to allow small RV or boat to be enclosed on back
extended drive. Even the garage floor is textured epoxy with plenty of

Mortgage Rate Outlook: Rates Drop After Federal Reserve Inaction

By now you may have heard the news: the Federal Reserve will continue with its quantitative easing (QE) program in full, buying $85 billion per month in U.S. Treasury bonds and mortgage-backed securities (MBS).

You can read our full news article here: “No Tapering. Federal Reserve Continues Stimulus Program in Full, Mortgage Rates Drop“.

The FOMC has used the stimulus program to “grease” the economy and accelerate the housing market recovery. In the third iteration of QE, the Fed added $40 billion in MBS purchases per month, which put downward pressure on mortgage rates and helped the 30-year fixed reach the lowest levels on record in late-2012.

Though many watchers had expected the FOMC to reduce its stimulus spending (“taper”), the committee voted to continue in full, citing concerns about the strength of the labor market. The FOMC statement also listed government fiscal policy as a possible hiccup to the recovery, which includes austerity budget cuts and gridlock over raising the debt ceiling.

Markets had already began to price in a September “taper”, so when the contrary was announced, stocks, bonds, and mortgage rates moved to adjust.

The Dow Jones Industrial Average and the S&P 500 both reached record-high closes, the bond market improved, and mortgage rates dropped.

As a major player in MBS market, the Fed is able to effect mortgage rate movement. Mortgage-backed securities have a market “price” for investment and a “yield” (pay-out) to entice investors. When the price to purchase a MBS rises, the yield drops – investors are paying more for the product, and so take home (“yield”) less.

Mortgage rates are correlated to that “yield.” When the MBS market is active and the yield drops, so do rates. The Fed helped bring borrowing rates down, but when markets got wind of possible “tapering”, they moved to adjust future expectations. Evidence of this process comes from the July FOMC meeting, after which Fed Chairman Ben Bernanke stated that the Fed would “taper” QE as the economy improved. Markets viewed this statement with alarm.

At the time, we worried that higher rates would reduce affordability and cut into the housing market recovery. We wondered why markets interpreted Bernanke’s comments so aggressively – Bernanke had always said “look to the data” and we didn’t think “the data” was good enough to risk a housing market relapse.

As it turns out, the data wasn’t good enough. Now it looks like QE could continue in full through 2013 and into the new year.

For mortgage rates, this means a downward adjustment. The “cost” for a 30-year fixed has dropped by about 1.000% (100 basis points) since Wednesday. In dollar terms, we estimated that this cost improvement brought down the expected monthly payment by about $30.

What does this mean for the future of mortgage rates? We will borrow from our recap article:

“The markets will now begin to speculate if December will be the taper meeting,” said Podesto.

The FOMC will “closely monitor… economic and financial developments in the coming months,” according to its policy statement. It will “continue its purchases… until the outlook for the labor market has improved substantially in a context of price stability.”

The Fed’s MBS purchases will continue to put downward pressure on rates, but the ultimate reduction of QE will keep mortgage rates from reaching the record-low levels from earlier in the year.

“I think rates will continue to ease in the upcoming weeks, but not back to May or June levels,” said Podesto. ”We are going to taper at some point, and the markets are prepared and have priced in that event.”

See here for September 23 mortgage rates.

Announcing HDTV Home Search!


We are pleased to announce a new type of Home Search that you won’t find on any other site because…we developed it ourselves!

This is the press release which went out today.

San Luis Obispo Real Estate Agent Keith Byrd Brings Home Searches to High Definition TVs (HDTVs)

San Luis Obispo, CA (PRWEB) September 18, 2013

Keith Byrd, a real estate agent in San Luis Obispo, California, announced today HDTV Home Search™, the first home search optimized for displaying home listings on an HDTV using Apple TV’s Airplay or Google’s Chromecast. HDTV Home Search™ is immediately available on Keith’s web site at

With HDTV Home Search, a consumer taps on the screen of a smartphone or tablet to run their desired home search, and the main photo of each resulting listing is broadcast on the HDTV. The consumer can tap the photo to see the basic listing information (price, address, bedrooms, square footage) appear over the photo. Another tap on “Details” displays additional photos and comprehensive information about the listing. Swiping the photo displays the next listing.

“When couples are searching for homes, they drive around neighborhoods together, go to open houses together, and view homes with a real estate agent together. They can discuss the homes they see in the moment.”, said Keith Byrd, “but when searching homes online, couples do their searches independently (or only one of them does the online searching). This doesn’t allow them to discuss the homes with each other before one (or the other) removes a home from the list of potential homes to look at. Our HDTV Home Search makes it quick and easy for couples to view and discuss home listings throughout their entire home search process.”

According to the 2012 California Association of REALTORS Home Buyer Survey, 79% of buyers searching the Internet for homes are couples. The amount of time buyers are searching online before contacting a real estate agent has also increased. In 2012, buyers spent 12 weeks searching before contacting an agent vs. 4 weeks in 2006.

While the HDTV Home Search is optimized to work with broadcasting on an HDTV, it also works great for home searching on individual devices (smartphones, tablets, laptops, and desktops). HDTV Home Search requires no special apps to be downloaded; it works within an existing web browser supporting HTML5. It is immediately available on Keith’s San Luis Obispo real estate website –