The last couple years haven’t been kind to home buyers. Between high interest rates and low inventory, many would-be buyers have been sitting on the sidelines waiting for a change in market conditions. Yet with inflation proving stubbornly persistent, homeowners remain disinclined to sell and give up their low, pre-2022 interest rates for more expensive new loans.
Housing Market Scenarios
I won’t purport to predict when economic conditions will become more favorable. But when they do, I foresee two results in the housing market: (1) an increase in competition for available inventory, further driving up prices; and (2) frustrated buyers over-extending themselves to win bidding wars.
Of course, both outcomes are predicated on the idea that increased inventory lags interest rate decreases. But I think it is likely that sellers will remain wary of giving up existing low interest rates until they can be confident a drop in rates isn’t temporary.
REal Estate and Security Clearances
If you’re wondering what all of this has to do with security clearances, the answer is found in an earlier period of housing market chaos: the 2008-2009 financial crisis. Conditions back then were the opposite of today – a glut of inventory and loans being handed out to anyone with a pulse. Yet the spectacular crash that followed exposed a similar dynamic to what I fear may be coming down the pike again soon: over-extended borrowers and a tidal-wave of foreclosures.
To be fair, increased lending standards and legal requirements following the 2008-2009 debacle should prevent a repeat of the worst abuses. However, the sheer degree of pent-up demand that appears to now exist will inevitably result in some buyers (and lenders) throwing caution to the wind.
A Walk Down Memory Lane
That’s exactly what happened on a larger scale 15 years ago. While I didn’t enter law practice until a few years after the end of that housing market meltdown, perhaps nowhere were the aftershocks still being felt so harshly than among security clearance holders and applicants. The first few years of my law practice were spent handling a large volume of security clearance denial and revocation cases where the issue was a foreclosed property from years prior and a deficiency judgment[1] against the borrower that remained outstanding. The reason for the delay in the government pursuing these cases? They didn’t discover the foreclosures until the clearance holder/applicant completed their next SF-86 when applying for a job or a periodic review.
Things will be different this time around with Continuous Vetting. Instead of clearance holders having potentially years of time to clean-up their finances post-foreclosure before the government learns of the problems, now a foreclosure or judgement appearing on a clearance holder credit report should result in real-time notification. Clearance holders in such a scenario may be called to account for their finances and personal responsibility without much time to establish mitigation, making winning cases more challenging.
Warning to Clearance Holders
All of this is to say that clearance holders who overextend themselves financially in a zeal to get off the sidelines and into the housing market might be inviting career problems in addition to financial ones. Buying a home can be a great life milestone and a good investment, provided emotions don’t cloud budgets. Keep that in mind if and when housing market conditions begin to change.
This article is intended as general information only and should not be construed as legal advice. Although the information is believed to be accurate as of the publication date, no guarantee or warranty is offered or implied. Laws and government policies are subject to change, and the information provided herein may not provide a complete or current analysis of the topic or other pertinent considerations. Consult an attorney regarding your specific situation.
[1] The difference between the borrower’s original loan value and the amount of money the lender recouped following a foreclosure sale of the property. Many, but not all, states allow the lender to pursue the borrower for this amount – which can be a large amount of money – but there may be ways to avoid it by proactively working with the lender and legal counsel.
