Shutdown surprises in store for homebuyers and sellers

Once again, the real estate market finds itself in uncertain times.

The federal government shutdown is creating uncertainty in residential real estate markets. While some economists predict mortgage rates could drop slightly as investors move toward safer bonds, housing experts warn that economic volatility and processing delays may offset any potential benefits.

But if you’re about to make an offer, or weighing accepting one, you may be paralyzed. What’s the right move? We’ll try to unpack what the shutdown means for buyers and sellers.

Who gets hit hardest?

Homebuyers with government-backed loans face the most immediate impact. FHA, VA, and USDA loans represented a combined 22% of all mortgage loan originations in 2024, according to Charles Rivers Associates review of the 2024 Home Mortgage Disclosure Act (HMDA) data recently released by the Consumer Financial Protection Bureau (CFPB).

Both HUD (which processes FHA loans) and the Department of Veterans Affairs operate with skeleton crews during shutdowns, meaning your closing could get pushed back — potentially by weeks if this drags on.

Buyers in flood-prone areas face additional complications. The National Flood Insurance Program expired on Oct. 1, which means no new flood insurance policies can be issued until legislation is passed (which goes beyond a shutdown). This particularly affects buyers in states like Florida and Louisiana, although nationwide, many buyers can’t get their mortgages approved without having flood insurance.

According to Shannon McGahn, the National Association of Realtors® executive vice president and chief advocacy officer, “NFIP supports nearly half a million home sales annually, contributing $70 billion to the U.S. economy and over a million jobs.”

First-time and lower-income homebuyers are more vulnerable because they’re more likely to need government-backed financing. USDA loans — which help buyers purchase homes in rural areas with zero down payment — will likely stop being issued entirely during shutdowns. FHA continues processing single-family mortgages, but with significantly reduced capacity.

So, if you’re using a government-backed loan (FHA, VA, or USDA) or buying in a flood zone, expect delays. If you’re thinking about buying or selling soon, keep your timeline as flexible as possible. And, try to get pre-approved for your mortgage before making an offer. Cash buyers shouldn’t be affected.

What about mortgage rates?

The relationship between government shutdowns and mortgage rates isn’t straightforward.

During shutdowns, rates sometimes drop because investors flee to safer investments like Treasury bonds. Colin Robertson, founder of The Truth About Mortgage blog, notes this “flight to safety” can temporarily push rates down. The 2018-2019 shutdown saw rates decline from 4.62% to 4.45%. That’s something, but it’s not guaranteed.

Housing economists generally agree that government shutdowns create what Anthony Smith from Realtor.com calls “short-term noise,” but notes that “lasting movements tend to be driven by broader economic and policy forces.”

Mostly, shutdowns create economic volatility on a personal and global scale. Any modest mortgage rate decreases are likely to be offset by job uncertainty and processing delays.

The broader economic picture

Meanwhile, the housing market faces multiple headwinds simultaneously: potential mass layoffs of federal workers, longer unemployment periods (particularly for white-collar workers), ongoing inflation concerns, corresponding Federal Reserve interest rate decisions, and now a government shutdown.

It’s enough to make any buyer or seller nervous.

This week’s ADP National Employment Report saw the private labor market shrink by 32,000 jobs in September, including thousands in the construction industry. “Despite the strong economic growth we saw in the second quarter, this month’s release further validates what we’ve been seeing in the labor market, that U.S. employers have been cautious with hiring,” said Dr. Nela Richardson, chief economist at ADP.

These numbers don’t include anyone affected by the government shutdown. The Trump Administration has indicated it will enact permanent job cuts if the shutdown isn’t resolved quickly — not just temporary furloughs.

Impact on sellers and investors

The real issue for the residential real estate market is all the uncertainty caused by economic upheaval. Uncertainty makes buyers nervous, causing them to wait and reconsider major purchases. Even a minor issue during a home inspection can derail an entire deal when buyers are feeling anxious.

According to a National Association of Realtors survey of past shutdowns, 75% of real estate agents reported no impact on contracts or closings. However, 11% did see effects — and among those, 25% said their clients decided not to buy because of general economic uncertainty.

Buying or selling in the next 30 to 60 days? Consider them following:

If you’re mid-transaction, stay in close contact with your lender, especially if you’re using a government-backed loan or buying in a flood zone. The Federal Reserve operates independently and remains open, so closings should still happen. Ask your lender about contingency plans and consider adjusting your timeline.

If you’re planning to buy or sell soon, s ome mortgage rates might drop slightly, but application delays are likely. The longer this shutdown continues, the worse the ripple effects become. Remember: If you buy a home and rates drop significantly later, you can always refinance. That’s a better choice than trying to time the market, which almost never works.

If you’re a federal worker facing job uncertainty, we don’t blame you for hitting pause on any big financial decisions right now. Take a breath, step back, mourn the missed opportunity (if there is one), and remember, there will always be another house.

We’ve weathered government shutdowns before, and the housing market has proven resilient. This one feels different because of threats of permanent job cuts rather than temporary furloughs. Everything feels as though we’re on a knife’s edge, and that makes everyone nervous.

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(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask (4th Edition).” She writes the Love, Money + Real Estate Newsletter, available at Glink.Substack.com. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through her website, ThinkGlink.com.)