How the government shutdown impacts the housing market: Loan availability, closing times, and more
When Washington shuts down, it doesn’t just freeze politics. A shutdown also affects the housing market. Home buyers face stalled loan approvals, sellers juggle delayed closing dates, and furloughed federal employees are left wondering how to make the next month’s mortgage payment. The ripple effects can be felt everywhere, from rural towns waiting on USDA loans to the high-priced neighborhoods surrounding the nation’s capital.
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When key housing programs stop, deals stall
The most immediate impact on the housing market during the shutdown is a slowing of services. “Even with the government shutdown, it’s still possible to obtain a government-backed loan from agencies like the FHA and VA,” Joseph Young, managing director at Mercer Advisors, said in an email interview. “But they’re operating with significantly reduced staff, so processing times and closing dates are likely to be interrupted.”
That slowdown has real consequences. While FHA and VA loan applications may continue processing, any step requiring a manual review or federal verification — income checks or IRS transcripts — could be delayed. And for some buyers, this setback can push a deal past its expiration date.
One loan program in particular, which supports lower-income and rural buyers, has been hit hardest. “USDA loans are the most affected, with a complete suspension of new loans issued,” Young said.
Another hitch for buyers and owners during the shutdown? Flood insurance. The National Flood Insurance Program (NFIP) is currently closed during the shutdown. Without their services, many mortgages can’t close. Analysts at HomeAbroad estimate that 3,600 home closings per day, worth roughly $1.6 billion in daily sales, could be at risk if the NFIP remains closed.
Federal workers feel the squeeze
According to the Bipartisan Policy Center, over 700,000 federal workers have been furloughed, and a roughly equal number are continuing to work without pay. Should the shutdown continue, the Center also reports that up to 3 million active-duty military and 750,000 National Guard and reserve personnel may be required to serve without pay. That loss of income is already reshaping local housing markets.
“The psychological toll of the shutdown is already seeping into homebuyer behaviors,” Alex Blackwood, CEO and co-founder of real estate investing platform mogul, said in an interview via email. “With roughly so many federal workers facing suspended pay, regions with heavy federal employment are feeling it most.”
The data back him up. “In the D.C. area, pending home sales are down about 6.7% year-over-year — a much sharper drop than the national average — as would-be buyers pull back amid furlough fears,” Blackwood said. “On the flip side, new listings are up 9.8%, the third largest jump among major U.S. metros, as some locals look to offload their homes.”
For current homeowners, missed paychecks can snowball fast. “If a homeowner has been affected by the shutdown — whether they’ve been furloughed, laid off, or are concerned about a potential job loss — they should reach out to their mortgage servicer right away,” LaQuanda Sain, executive vice president of service at Rocket Mortgage, said in an email interview. “Acting early, before missing any payments, can help homeowners stay in control during an uncertain time.”
Most lenders, Sain added, have hardship programs designed for short-term disruptions, including mortgage forbearance or temporary payment adjustments, both of which could be a boon for homeowners struggling with the shutdown.
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Mortgage rates may dip — but don’t expect an easy win
If there’s one benefit to the turmoil in Washington, it’s that the government shutdown can lower mortgage rates. During periods of uncertainty, investors tend to buy U.S. Treasurys, pushing yields (and by extension, mortgage rates) down.
“One of the few silver linings in this shutdown is what it’s doing to mortgage rates,” Blackwood said. “We’ve seen rates dip to near their lowest levels of the year. The average 30-year fixed rate recently hovered around 6.3%, a notable retreat from the peaks we saw earlier in the year.”
Freddie Mac’s Primary Mortgage Market Survey confirms the trend, showing the 30-year fixed-rate just below 6.3% in mid-October, its lowest point since late 2024.
Lower rates might help new buyers, but they don’t automatically translate to more mortgage refinancing activity. Many homeowners are still locked into pandemic-era loans with sub-3% interest rates, making refinancing an unappealing option.
Could lenders tighten underwriting standards during times of financial uncertainty? That’s also possible, making refinancing less of a sure bet for some.
“While borrowing costs may soften, financial readiness and agility matter more than ever,” said Young. “Borrowers should have all documentation in order, maintain strong credit profiles, and be poised to act quickly if favorable terms appear.”
Delays are building, and they’ll take time to unwind
Even where programs remain operational, backlogs are piling up. Teams at the U.S. Departments of Veterans Affairs and Housing and Urban Development are operating with reduced staff, creating slower underwriting processes and longer closing times.
To minimize problems, Sain suggested buyers should front-load the process. “Homebuyers should share the most up-to-date documentation with their lender upfront, avoiding potential delays caused by documents that require federal retrieval and verification.”
Real estate agents and mortgage lenders are responding with “shutdown contingencies,” or contract clauses that allow extra time if a lapse in federal services delays a deal. But once the government reopens, those delays don’t disappear overnight. Thousands of pending files will be reentered into the system all at once, creating a backlog that could take weeks to clear.
That’s especially challenging for rural and coastal markets where USDA loans and flood insurance are vital. If those pipelines remain frozen, local sales could stall completely.
Regional impacts vary widely
Not all markets will feel the shutdown equally. In government-heavy regions like Washington, D.C., Northern Virginia, and Maryland, the pause in paychecks is already cooling housing demand.
Rural areas are equally exposed — not because of furloughs but because USDA financing ground to a stop when the shutdown began. And in coastal regions, any lapse in flood insurance can derail a deal entirely. By contrast, metros with more diversified economies and a higher share of cash buyers may weather the shutdown turbulence more easily.
The result? We could be looking at a split market where price growth stagnates in federal-worker hubs while other regions remain relatively steady.
How homeowners can protect themselves
For homeowners already juggling uncertainty, financial flexibility is crucial.
“We're telling clients to refocus on their financial plan — specifically on cash-flow needs and core monthly expenses,” Young said. “It may become necessary to focus on budgeting priorities, really looking at discretionary versus non-discretionary expenses and whether to use savings or alternative options for liquidity.”
Sain’s advice is similar: Act early, stay organized, and keep the line of communication open with your lender. “The earlier you act, the more options you have,” she said.
If you live in a flood zone, double-check your insurance coverage — especially if you’re up for a renewal soon. Additionally, anyone refinancing should ensure that all their flood insurance paperwork is up to date to avoid extra delays when federal verification systems are offline.
What buyers should keep in mind
Buyers using federal loan programs should expect slower timelines and have a backup plan in place. “HUD continues to process FHA loans, and the VA is still originating loans as well,” Sain said, noting that steps such as underwriting and verification may take longer due to the human nature of those steps.
She noted that Fannie Mae and Freddie Mac operate independently of the federal budget, meaning conventional loans remain largely unaffected. Buyers who qualify for both government-backed and conventional loans might keep a conventional approval ready in case timing becomes an issue.
Despite the uncertainty, Young encourages persistence. “We’re advising clients to stay focused on property identification, document organization, and clear communication with sellers and lenders.”
Blackwood even sees opportunity in the chaos. “People tend to feel most confident investing when things are going well,” he said. “But history shows the best long-term returns are made when conditions feel uncertain. At mogul, we’re seeing strong opportunities to buy high-quality properties at steep discounts as rental demand continues to climb.”
For buyers willing to navigate a slower, more complex process, the uncertainty of this federal shutdown could present a rare opportunity to find value in the current real estate market.
Laura Grace Tarpley edited this article.
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