How a Government Shutdown Can Impact the Housing Market
This week’s blog was co-authored with Ann Flaherty with First Home Mortgage.
As the federal government teeters on the brink of a potential shutdown, the consequences could ripple across various sectors, including the housing market. The looming threat of a government shutdown can have far-reaching effects, disrupting housing-related services and potentially harming homeowners, buyers, and renters. In this blog, we’ll explore the potential impacts of a government shutdown on the housing market, drawing insights from reputable sources like The Washington Post, HUD, and Newsweek.
1. Delayed Mortgage Approvals:
One of the immediate consequences of a government shutdown is the disruption of federal agencies’ operations, including those related to housing. As documented in The Washington Post’s report on the longest government shutdown, federal agencies like the Department of Housing and Urban Development (HUD) often operate with reduced staff or cease certain functions during a shutdown. This can lead to delays in processing mortgage applications and approvals, affecting both prospective homebuyers and homeowners seeking refinancing.
According to HUD’s Shutdown FAQs, during a government shutdown, “FHA will endorse new loans, but there will be no staff available to underwrite and approve new loans.” This can lead to frustrating delays for individuals in the midst of their home purchase process, potentially affecting closing dates and interest rates.
2. Housing Market Uncertainty:
A government shutdown creates uncertainty in the housing market. Potential homebuyers may hesitate to enter the market due to concerns about how the shutdown will affect interest rates, the availability of mortgage financing, and the stability of the economy. In the 2023 Washington Post business report, experts warned about the calamitous and costly impacts of a government shutdown on various sectors, including housing.
Uncertainty can lead to decreased demand for homes, which can impact sellers and potentially lead to reduced property values. Sellers may need to adjust their pricing expectations, especially if the shutdown persists for an extended period.
3. Risk to Flood Insurance:
The housing market also has a strong connection to flood insurance, particularly in flood-prone areas. A government shutdown can jeopardize the National Flood Insurance Program (NFIP), which is administered by the Federal Emergency Management Agency (FEMA). As reported in Newsweek, Congress’s actions during a shutdown can threaten the stability of the flood insurance program, impacting homeowners in flood-prone regions.
Without access to federally backed flood insurance, homeowners might find it challenging to secure affordable coverage, affecting the saleability and value of their properties. Furthermore, lenders often require flood insurance for properties in high-risk areas, so a lapse in the NFIP could disrupt real estate transactions.
4. Impact on Housing Programs:
Government shutdowns can also affect housing assistance programs. Low-income individuals and families who rely on housing vouchers, Section 8 assistance, or public housing may face disruptions in their housing stability. The HUD Shutdown FAQs note that while most HUD programs are funded for the short term, a prolonged shutdown could result in delayed payments to landlords, making it harder for those in need to find or maintain housing.
A government shutdown has the potential to create a cascade of challenges in the housing market, from delayed mortgage approvals to increased uncertainty and disruptions in housing assistance programs. As the October 1 deadline approaches, stakeholders in the housing market, including homebuyers, sellers, and renters, should remain vigilant and prepared for potential disruptions. It underscores the interconnectedness of government operations and the real estate sector, emphasizing the need for timely resolutions to budgetary disputes to maintain a stable and thriving housing market.
If you have questions about how a government shutdown could potentially impact your real estate plans, give Properties on the Potomac a call at 703-624-8333 today!







