The shutdown’s main impact on housing so far? Buyer confidence
Mortgage rates have dropped to 12-month lows, but pending sales have also fallen — an indication that buyers are cautious as the government remains shuttered.
Key points:
- Potential homebuyers’ economic concerns appear to be the biggest driver of lackluster demand as the federal government shutdown stretches into its fourth week.
- The longer the impasse lasts, the more likely the strain will start showing up in real estate closings as federal agencies remain closed or understaffed.
- While a key inflation report is due out on Oct. 24, the absence of other economic data releases will pose a challenge to the Federal Reserve when members of the central bank meet next week.
While the federal government shutdown is now in its fourth week, it's tricky to gauge the extent of its impact on real estate so far. However, the housing market is experiencing an extra level of sluggishness — even with 30-year mortgage rates hitting their lowest level in over a year.
Weekly pending sales data indicates that the shutdown is making buyers extra cautious, according to Dave Crosby, chief data and analytics officer at Compass. During an Oct. 20 YouTube presentation on the brokerage's weekly real estate report, Crosby noted that pending sales have fallen behind last year's pace for the first time in a couple of months.
It's just one week of data, Crosby said, so the slowdown could be a blip — but it's worth monitoring.
Economic concerns predate the shutdown
Chen Zhao, who leads the economics research team at Redfin, said she hasn't seen concrete evidence yet that the shutdown is directly impacting the national real estate market. Demand is fairly lackluster despite falling mortgage rates, she noted, but that could be attributed to general economic uncertainty.
"It's very possible that people are jittery about the economy and that they would be equally jittery if the government was open," Zhao told Real Estate News in a phone interview.
Zhao is monitoring economic data to track what'll happen as federal workers who aren't getting paid start running out of money. More than 1 million government employees have either been furloughed or are still working, but not receiving their paychecks.
"At some point it might actually become an issue where people are saying, 'Well, I can't pay my bills anymore,'" Zhao said, adding that it may take time before this leads to missed mortgage or rent payments because those tend to take higher priority for most households.
An absence of new data
Another growing concern is the lack of economic data coming from the federal government. A widely anticipated inflation report set for release on Oct. 24 is expected to be the only data that the Bureau of Labor Statistics will publish until the government reopens — and a key jobs report has already been skipped.
Zhao believes the agency hasn't collected any data in October, which leaves a black hole for those who rely on these reports to gauge the health of the U.S. economy — including members of the Federal Reserve, whose October meeting will take place next week.
"That matters to the housing market because it matters for what the Fed is going to do, and that matters for mortgage rates," said Zhao, who added that it's unclear what information the central bank will be able to rely on when its final meeting of 2025 comes along in December.
Market impacts may be building
The impacts of the legislative impasse may become clearer the longer the shutdown lasts.
In an update to members shared through its magazine, the National Association of Realtors said that the "ripple effects across the real estate sector are becoming more visible, and more troubling." As an example, NAR noted that the federal agencies that play key roles in home sales are either not operating or have reduced staffing.
"The longer the government shutdown goes on, the greater the negative impact on the real estate economy and taxpayers," NAR EVP and Chief Advocacy Officer Shannon McGahn said.
The Mortgage Bankers Association has also warned members to expect significant delays from federal agencies. Some estimates put the number of delayed loan originations at 2,500 or more per working day.
"That burden falls especially hard on borrowers already facing the greatest barriers to homeownership," Zillow Senior Economist Orphe Divounguy wrote in a recent online post.
Zhao hasn't seen a big impact on the finance side yet, as lenders appear to be finding ways to finalize deals. "It really feels like what's driving the real estate market is broader fears around the economy," she said.
Regional impacts vary
Delayed closings and a broader housing market slowdown will hit differently across the country. A recent WalletHub study found that when real estate was measured as a percentage of the gross state product, Florida, Delaware and Arizona topped the list while Washington, D.C., Nebraska and Iowa were at the bottom.
Economists are closely watching the D.C. market in particular since it is home to thousands of furloughed workers. According to Bright MLS, new listings during the week ending Oct. 19 were up 8.6% compared to a year ago, while the median list price was $575,000 — almost unchanged from this time last year.
But many furloughed D.C. employees and contractors just had their first missed paycheck — and the more they miss, "the more likely we are to see further growth in listings, fewer buyers, and softer price growth or even price declines," said Lisa Sturtevant, chief economist at Bright MLS.
"For buyers not impacted by the shutdown, the upside will be more choices and more room to negotiate on price and concessions during this shifting market," Sturtevant added.