Uncertainty and federal delays will further dent homebuyer confidence
As the deadline for a federal government shutdown approaches, the real estate and mortgage industries are weighing the consequences of delays to loan processing and another hit to homebuyer confidence.
But could a government shutdown result in lower mortgages rates? Certainly, some professionals see a scenario where a shutdown reignites fears of a recession, sparking a rush to the Treasury market, which in turn drives down mortgage rates.
It’s a hopeful silver lining amid the chaos, however. At time of publishing, the US government is hours away from its first shutdown in six years with lawmakers deadlocked. Republicans have backed a short-term plan with no additional provisions, while Democrats want health care measures attached, including an extension of Affordable Care Act subsidies. With the Senate’s 60-vote threshold looming, any deal will require bipartisan support.
President Donald J. Trump has added further uncertainty, signaling that a shutdown could trigger permanent staffing cuts at federal agencies.
Ripple effects across housing
Past shutdowns have demonstrated how interruptions in federal functions quickly ripple into housing markets. Closings can be postponed when the Internal Revenue Service slows tax transcript verification, while FHA, VA and USDA loans are delayed as staff work with reduced capacity.
Glen Weinberg, of Fairview Commercial Lending, said the impact of the shutdown on housing will likely not affect rates that much and will be nothing more than a blip from a macro perspective. However, he warned that the real impact will be damaged consumer confidence.
“When you get any uncertainty, that doesn't help the market whatsoever,” he told Mortgage Professional America. “That's going to be the story: what happens with consumer confidence? If you look at the 10-year treasury on mortgage rates, it's probably not going to do much. If I look at even 30-year mortgage bonds, they're basically kicking around about where they were a week ago.”
Flood insurance at risk
Perhaps the most immediate concern is the National Flood Insurance Program (NFIP). A lapse would leave thousands of daily home sales in limbo, particularly in coastal and flood-prone states where coverage is mandatory.
“Builders need to be aware that even a short-term disruption to the program will force delays — and in some cases, cancellations — to home sales and multifamily transactions that require federal flood insurance under the NFIP,” the National Association of Home Builders (NAHB) warned in March, during the last round of funding tensions.
The timing is especially fraught as forecasters track multiple storm systems in the Atlantic, including a disturbance near the Bahamas that could form into Tropical Storm Imelda and Hurricane Humberto strengthening farther east.
Confidence erodes
Beyond direct program impacts, shutdowns simply erode consumer sentiment, although historical evidence shows shutdowns rarely leave a deep mark on national housing statistics, though their effects vary regionally. Markets with large concentrations of federal employees or heavy reliance on flood insurance often feel the brunt. The 16-day closure in 2013 and the record 35-day shutdown in 2018–19 each produced delays and lost sales, even as national averages eventually stabilized.
Weinberg added: “Right now they're just playing a pretty good game of chicken between the Republicans and the Democrats. But from the housing [perspective] the biggest thing is the uncertainty. People want to buy when they know that there's economic certainty. The housing market's already kind of lackadaisical. And if you look at the stock market today, there's not a huge change. It's not like the market's panicking one way or the other.”
