The likelihood of a partial government shutdown on Wednesday is increasing, as Republicans and Democratic leaders did not budge from their negotiating positions on Monday.
While the U.S. housing market has proven resilient to shutdowns in the past, a new round of mass layoffs of federal workers—as threatened by the White House—could slow down mortgage applications for millions of Americans, experts say.
Expected Delays in Mortgage Applications
During a shutdown, federal employees are usually furloughed and they receive back pay once Congress votes to reopen the government. This time, however, the White House could instruct federal agencies to launch mass firing plans should the government face a shutdown.
A memo obtained by Politico shows that the Office of Management and Budget (OMB) told federal agencies to use a potential shutdown as an opportunity to “consider Reduction in Force (RIF) notices for all employees in programs, projects, or activities” for which funding would lapse and are otherwise unfunded, and are not consistent with Trump’s priorities.
An analysis of the potential consequences on the U.S. housing market by Redfin head of economics research Chen Zhao found that mortgage applicants are likely to be hit the hardest by a federal government shutdown.
“Homebuyers seeking federally backed mortgages, such as FHA [Federal Housing Administration] or VA [Department of Veterans Affairs] loans (together about a quarter to a third of all loan applications), may experience application delays,” she wrote in the report.
“This is because FHA loans are secured through HUD [Department of Housing and Urban Development] and VA loans through the Department of Veterans Affairs, both of which may be affected.”
Homebuyers in flood-prone regions of the country—including Florida and Louisiana—could face significant delays in their home purchases if they rely on government-backed flood insurance, the funding for which will expire on October 1. If the National Flood Insurance Program, administered by the Federal Emergency Management Agency, is allowed to lapse, new flood insurance policies will not be issued, and existing policies will not be eligible for renewal.
Any mortgage applications that rely on tax return transcripts or income verification from the Internal Revenue Service (IRS), Zhao said, could also be delayed if mass layoffs follow a government shutdown.
Suffering Home Sales
The U.S. housing market is still sluggish after a very slow summer marked by dwindling sales and booming inventory, which buyers are leaving on the market due to ongoing affordability issues.
Lower mortgage rates, which have fallen in recent weeks in anticipation of the Federal Reserve’s decision to cut rates for the first time since December 2024, are helping get buyers back to the market—but experts think that a government shutdown might hinder their return.
This would not be a direct impact, but the result of growing uncertainty around the future of the U.S. economy—and whether the Fed will continue cutting rates in the coming months.
“Markets generally shrug off government shutdowns, as they follow a fairly predictable playbook. An unusually long shutdown or any RIFs could upend those expectations—though markets may view layoffs as likely to be overturned by the courts,” Zhao said.
“If the government statistical agencies are affected and critical data releases are delayed, markets could become more volatile, especially if expectations around Fed rate cuts for the October and December meetings get scrambled. The most important upcoming data release is the October 3 jobs report.”
A Crisis That Could Still Be Averted
Lawmakers have until the end of Tuesday, September 30, to avert a government shutdown. If they are not successful, the federal government will cut funding to many of its operations at the end of the day, bringing some services to a temporary halt.
If a deal is not reached by the end of the day, the U.S. will face its first shutdown in nearly seven years, with both Republicans and Democrats likely taking the blame for it.
