Understanding How Government Shutdowns Affect the Housing Market
Public conversations often raise concerns about whether a federal government shutdown brings the housing market to a complete stop. Because real estate transactions depend partly on federal agencies, these concerns are understandable. However, a shutdown does not cause the housing market to shut down. Instead, it introduces temporary slowdowns in specific areas rather than halting the overall system.
Why the Housing Market Continues Operating
Even during a shutdown, the fundamental mechanisms of the housing market remain active. Buyers continue searching for homes, sellers continue listing their properties, and real estate professionals work to move transactions forward. This is because most components of the housing market are driven by private individuals, lenders, and industry professionals—not by the federal government.
What does change is the speed at which certain federally supported processes occur. A government shutdown can limit staffing or temporarily pause functions within key agencies, creating bottlenecks in the following areas:
1. Government-Backed Loan Processing
Programs such as FHA, VA, and USDA loans rely on specific federal departments. When these departments furlough workers, loan applications take longer to review.
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Selma Hepp, Chief Economist at Cotality, explains that about one-quarter of all mortgage applications use these programs, meaning many borrowers could face processing delays.
2. Daily Mortgage Originations
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Zillow estimates that more than 2,500 mortgage originations per working day are vulnerable to delays during a shutdown, which can temporarily slow contract timelines.
3. Flood Insurance Approvals
The National Flood Insurance Program (NFIP) may also be affected. In areas requiring flood insurance, delays or pauses in NFIP activity can postpone closings until coverage is confirmed.
Despite these challenges, the majority of transactions still reach the closing table. The system slows—but it does not stop.
Historical Evidence: A Quick Market Rebound
Looking at past shutdowns helps illustrate this pattern. For example, the 35-day shutdown at the end of 2018 caused only a mild, temporary dip in housing activity.
Data from the National Association of REALTORS® (NAR) shows:
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Existing home sales slowed for roughly two months.
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Once the shutdown ended, delayed transactions caught up quickly.
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The short-lived decline aligned directly with the shutdown rather than with typical seasonal patterns, underscoring its temporary nature.
This historical case demonstrates that shutdown-related disruptions are generally short-lived and followed by swift normalization.
What This Means for Buyers and Sellers
If You’re Already Under Contract
For individuals currently buying or selling a home, a government shutdown may introduce minor delays, especially for transactions involving FHA, VA, USDA loans, or properties requiring flood insurance. These delays occur because staff shortages or paused agency functions slow down specific verification steps.
However, it is important to note:
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Private lenders continue to operate, and many aspects of the loan process are unaffected.
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Most delays are brief, often measured in days rather than weeks.
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Real estate professionals and lenders can often adjust timelines or find alternative solutions.
This means that while your closing date may shift slightly, your transaction is unlikely to be jeopardized solely due to a shutdown. As Housing Market Analyst Jeff Ostrowski explains, most buyers experience “a blip more than a real deal killer.”
If You Are Planning to Buy
For buyers still in the early stages of their search, a shutdown can create unexpected opportunities. Periods of uncertainty often cause other potential buyers to pause their plans, reducing competition in the market. This can lead to:
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Fewer bidding wars, giving buyers more time to evaluate homes.
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More negotiating power, as sellers may be willing to consider price improvements or favorable terms.
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Strategic advantages for buyers using conventional loans, since they may encounter fewer administrative delays.
In short, well-prepared buyers may find a brief window where they can act more confidently and deliberately.
If You Are Planning to Sell
For sellers, a temporary dip in buyer activity can feel concerning, but it may also reveal more serious and qualified buyers—those who remain active during uncertain periods typically do so with clear intent and financial readiness.
Sellers may also benefit from:
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More predictable negotiations, as active buyers are usually committed.
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A chance to stand out, since some homeowners wait to list their homes until the situation feels more stable.
Understanding potential loan-related delays on the buyer’s side allows sellers to set realistic expectations and work closely with their agent to maintain a smooth process.
Key Takeaway
While a government shutdown can slow particular administrative steps involved in buying or selling a home, it does not halt the housing market. Historical evidence shows that any dip in activity is temporary and followed by a rapid rebound once normal government operations resume.
If you are unsure how a shutdown may affect your plans, connecting with a knowledgeable real estate professional can help you navigate the process with clarity and confidence.
