"With the full government shutdown now stretching beyond 30 days, the nation finds itself in unprecedented territory," said the National Association of Realtors® on Friday. "The effects extend far beyond Washington. Local economies are beginning to feel the strain, and home buyers across the country are seeing slower activity and shaken market confidence."
On Oct. 1, we provided our analysis of how the current government shutdown might affect mortgages and homebuyers. The following day, we discussed its likely effects on mortgage rates. On the whole, we got things right, though they were fairly predictable to any industry observer.
Housing Markets During the Shutdown
So far, the shutdown – set to be the longest in history if it continues past Nov. 5 — has had only a limited impact on supply and demand for homes across most of the United States. However, there are exceptions.
There have been noticeable — but so far limited — effects in markets with a high concentration of federal employees, says National Mortgage Professional (NMP), a trade journal.
"Federal employment is most concentrated in the Washington, D.C. metro, where 11% of employed residents work for the federal government, followed by Virginia Beach (7%), Oklahoma City (4.2%), and Baltimore (3.7%)," reports NMP. "In these metros, there has been a modest slowdown in new listings, with D.C. reporting a 13.9% month-over-month decline, followed by Virginia Beach -5.1%; Oklahoma City -1.4%; and Baltimore -2.4%."
Mortgage and Flood Insurance Processing
"Critical housing and mortgage programs are operating at limited capacity, if at all, leaving buyers stranded, sellers waiting and real estate professionals caught in the middle," says NAR. "Many federal agencies that play essential roles in housing are now working with reduced staff or have suspended vital functions entirely."
When the NAR asked its members to tell it about how the shutdown was affecting their real estate transactions, it received 600 responses. The most popular ones were:
- VA and USDA loans — The USDA program is shuttered for the duration of the shutdown, while VA loan processing is slowed with fewer staff in offices.
- Flood Insurance/NFIP — The National Flood Insurance Program (NFIP), which is managed by FEMA, is issuing no new policies, holding up home buyers who need coverage for their purchases. Existing policies remain in force, but renewing them is a problem. A 30-day grace period exists but, as the shutdown extends beyond 30 days, homeowners may find their coverage lapsing.
- FHA loans — FHA loans are still being processed automatically, but those that require human intervention are subject to delay owing to staff shortages.
When MarketWatch covered this story, it talked about home buyers "being left in limbo." And it reported the story of Maresa and Loren Sanderson, a couple in Virginia, who are buying a townhouse with a USDA loan.
People using USDA loans must have low-to-moderate incomes, meaning their savings are likely to be limited. So, the delay is hitting the Sandersons, who moved into a hotel in preparation for what they expected to be an imminent move, hard.
MarketWatch quotes the couple: "Between paying for the hotel, food and storage, I’m basically using all of my savings, all of my money, on top of the money I paid for the earnest money deposit and the appraisal on the home."
No doubt the Sandersons hope they'll be able to close on their new home soon after the government reopens. And they may well do so. However, it often takes agencies weeks to get back up to speed after a full shutdown.
Meanwhile, the NAR is worried about the cumulative effects of the shutdown. "The longer the government remains shut down, the more profound the harm to America’s real estate market and to taxpayers," says NAR Executive Vice President and Chief Advocacy Officer Shannon McGahn.
Mortgage Rates
Mortgage rates have been a rare beneficiary of the shutdown. While it lasts, it harms the economy, and mortgage rates typically fall during challenging economic times.
"Depending on its length, the government shutdown will reduce annualized real GDP growth in that quarter by 1.0 to 2.0 percentage points," wrote the Congressional Budget Office on Oct. 29. "After the shutdown, real GDP will be temporarily higher than it would have been otherwise. Although most of the decline in real GDP will be recovered eventually, CBO estimates that between $7 billion and $14 billion (in 2025 dollars) will not be."
At the start of the shutdown, on Oct. 1, the average rate for a 30-year fixed-rate mortgage was 6.36%, according to ICanBuy. On Nov. 4, that same rate stood at 6.31%.
However, that was after the Federal Reserve pushed mortgage rates higher. On Oct. 28, the day before the Fed's action, that rate was 6.07%.
So, leaving aside other factors, the shutdown has driven mortgage rates appreciably lower, as we expected.
