The 2025 Government Shutdown: What It Means for Homebuyers, Sellers, and the Market
Impact of Government Shutdown on Real Estate
On October 1, 2025, the federal government officially shut down after Congress failed to pass a funding bill for the new fiscal year. The shutdown is now entering its second week.
What Happens To Real Estate During a Government Shutdown?
A government shutdown means that federal agencies stop all ânon-essentialâ work. Hundreds of thousands of federal employees are furloughed, meaning theyâre out of a paycheck until the government reopens. Essential services like TSA, FAA air traffic controllers, Medicare, Medicaid, Social Security and the military keep running. The main federal housing agencies that continue some level of essential service are the U.S. Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA). Agencies not funded through annual appropriations should continue daily operations with only minor disruption. These include the Federal Housing Finance Agency (FHFA) and federal banking regulators. But many others will see a mixed bag of activities, or halt completely:
HUD
Rental assistance programs: Monthly payments under Section 8 Project-Based Rental Assistance (PBRA) contracts and Housing Choice Vouchers, as well as renewals of expiring contracts, will continue as long as previously obligated funds are available. If the shutdown lasts for an extended period, programs may run out of funds
Block grant programs (e.g., HOME, CDBG): Drawdowns of already obligated funds can continue, but no new grant funds will be available.
FHA
Multifamily loan closings that are scheduled or in progress will proceed, but there will be no new loan activity during the shutdown
Single-Family loans will be endorsed forward, but not Title I or Home Equity Conversion Mortgages (HECM).
USDA
Rural Development activities will generally stop, but those activities necessary to preserve the governmentâs interest in properties continue, including providing Section 521 rental assistance payments for existing contracts where funds remain available.
CDFI
Treasuryâs contingency plan states that the CDFI (Community Development Financial Institutions Fund) is not an essential program. Certification reviews, approvals, and new funding actions are suspended until the shutdown ends. CDFIs are financial institutions that provide credit and financial services to low-income and underserved communities not well served by traditional banks. They offer loans for small businesses, housing, and community projects, acting as a source of capital and support for families and businesses in distressed areas.
IRS
The Internal Revenue Serviceâs contingency plan provided IRA (Inflation Reduction Act) funding through supplemental appropriations through October 1, 2025, and normal IRS operations continued. The agency will need to update the public on its plans for week two and beyond.
The IRS provides income verification, tax history, and compliance information essential for mortgage underwriting, real estate investment calculations, and reporting property sales.
NFIP
The National Flood Insurance Program (NFIP) authorization is tied to appropriations legislation, so its ability to renew or write new policies is suspended until the program is reauthorized. Mortgage originations for properties requiring flood insurance can not close during the shutdown. Renewals for annual flood insurance policies are also disabled, putting homeowners with expiring policies out of compliance with mortgage requirements and at risk of loss.
These agencies play key roles in processing mortgage applications, verifying tax returns, guaranteeing loans, and providing flood insurance (NAAHL, CNN).
Mortgage Approvals: Expect Delays and Headaches
If youâre in the process of buying a home with an FHA or VA loan, pay close attention to your transaction deadlines and extend them if impact is anticipated. During a shutdown, federal agencies work with skeleton crews at best. New loans may not be approved, meaning participants can default and deals can fall apart simply because paperwork canât get processed in time. Even conventional loans can hit snags, especially if lenders need to verify tax transcripts or other documents with the IRS, which operated until October 5th using IRA (Inflation Reduction Act) funding that provided supplemental appropriations. After October 5th, the agency will update the public on its plans.
For home buyers and sellers alike, this uncertainty can be very stressful. Even non-contingent mortgage-related transactions could be adversely impacted through no fault of the buyer. Transaction participants should work together to ensure that deadlines are extended as needed and that deals remain intact.
The Ripple Effect: Regional Vulnerability
Not all markets feel the pain equally. Cities and regions with a high concentration of federal workers, such as Washington DC, Northern Virginia, parts of Maryland, and even smaller outposts around military bases or national labs, are especially vulnerable. When thousands of people suddenly stop getting paid, local economies feel it. Restaurants, shops, and, yes, real estate agents all see less business.
During previous shutdowns, home sales in these areas dipped noticeably. Buyers grew cautious, sellers held off listing, and the whole system slowed. If this shutdown drags on, expect to see similar patterns, but with the added stress of comparatively higher mortgage rates and rising inventory.
Buyer and Seller Confidence
Even if youâre not directly affected by the shutdown, headlines can shake your confidence. Consumer sentiment was already sliding as talk of a possible recession picked up steam this fall (Conference Board). The shutdown only adds to that uncertainty. Some buyers will hit pause, waiting for the dust to settle or hoping for a better deal if the market softens.
Sellers may wonder whether itâs worth listing at all right now, or if they should pull their home off the market until things stabilize. Itâs a recipe for fewer transactions, more negotiation, and, potentially, downward pressure on prices, especially in markets already cooling after years of rapid growth.
What About Interest Rates?
The Federal Reserve isnât directly affected by the shutdown, but the broader economic impact could play into its next moves. If the shutdown drags on and consumer spending drops, the Fed may feel more pressure to ease rates or at least hold off on future hikes. As for mortgage lenders, market uncertainty means volatility. Even if the Fed drops the benchmark rate, donât expect mortgage rates to automatically follow suit.
What Should Buyers and Sellers Do Now?
If you are considering a transaction during the shutdown, decide whether or not a financing contingency is necessary, research the impact of any federal agencies involved, determine the need for flood insurance, draft contracts with longer than usual escrow periods and include provisions for extensions to avoid tension and pave a smooth roadmap to closing.
Sellers should avoid back-to-back transactions and tightly scheduled moving plans.
Buyers may find that purchasing during the shutdown could mean additional flexibility with terms and price.
Looking Ahead
Nobody knows exactly how long this shutdown will last. The 2018-2019 shutdown dragged on for 35 days. The longer the term, the greater the risk of real damage to the real estate market, especially in areas like DC Metro which are reliant on federal jobs and contracts.
For now, the best advice is to stay informed, be flexible, and work closely with professionals who understand the ins and outs of buying and selling during uncertain times.