It's October 5th, 2025, and the federal government is entering the second week of its shutdown after Congress was unable to approve a funding bill for the new fiscal year.
Hopefully, your real estate transaction closed before October 1st. If not, here's what's in store.
How Does a Government Shutdown Affect Real Estate?
A government shutdown means federal agencies halt all “non-essential” operations. This results in hundreds of thousands of federal employees being furloughed—they’re temporarily without pay until the government reopens. Essential services such as TSA, FAA air traffic control, Medicare, Medicaid, Social Security, and the military continue operating. Among federal housing agencies, the U.S. Department of Housing and Urban Development (HUD) and the Department of Veterans Affairs (VA) maintain some essential functions. Agencies funded outside annual appropriations, like the Federal Housing Finance Agency (FHFA) and federal banking regulators, generally continue with minimal disruption. However, many others face partial or full shutdowns:
HUD
Rental assistance programs, including Section 8 Project-Based Rental Assistance (PBRA) contracts and Housing Choice Vouchers, along with contract renewals, will continue while obligated funds last. Extended shutdowns may exhaust funding. Block grant programs such as HOME and CDBG can continue drawing on obligated funds but cannot issue new grants.FHA
Multifamily loan closings already underway will proceed, but no new loan activity will occur during the shutdown. Single-family loans will be endorsed, but Title I and Home Equity Conversion Mortgages (HECM) processing is paused.USDA
Rural Development activities largely cease, except for those that protect government interests in properties. This includes Section 521 rental assistance payments for existing contracts as long as funds remain.CDFI
The Community Development Financial Institutions Fund is deemed non-essential, suspending certification reviews, approvals, and new funding until the shutdown ends. CDFIs provide crucial credit and financial services to underserved communities, supporting small businesses, housing, and community projects.IRS
The IRS continued normal operations through October 1, 2025, funded by supplemental IRA appropriations. Updates on operations beyond that date are pending. The IRS plays a vital role in income verification, tax history, and compliance—key elements in mortgage underwriting and real estate transactions.NFIP
The National Flood Insurance Program’s authorization depends on appropriations legislation. Without reauthorization, it cannot issue or renew policies, suspending mortgage originations on properties requiring flood insurance and placing homeowners with expiring policies at risk of non-compliance.
These agencies are central to mortgage processing, tax verification, loan guarantees, and flood insurance (NAAHL, CNN).
Mortgage Approvals: Expect Delays and Challenges
If you’re buying a home with an FHA or VA loan, closely monitor your transaction deadlines and request extensions if necessary. During shutdowns, agencies operate with reduced staff, which may delay loan approvals and risk deal failures due to paperwork bottlenecks. Even conventional loans can face hurdles, especially for IRS tax transcript verifications, which were funded only through October 5, 2025. The IRS will provide further guidance on operations moving forward.
This uncertainty can be stressful for buyers and sellers alike. Even non-contingent mortgage transactions may face unforeseen delays. Parties involved should collaborate proactively to extend deadlines and preserve transactions.
Regional Impact: Who Feels It Most?
Not all areas are equally affected. Locations with a high concentration of federal workers—such as Washington, D.C., Northern Virginia, parts of Maryland, and smaller federal installations—are particularly vulnerable. When thousands lose paychecks, local businesses including restaurants, shops, and real estate professionals experience downturns.
Past shutdowns saw noticeable dips in home sales in these regions. Buyers turned cautious, sellers delayed listings, and the overall market slowed. If this shutdown persists, expect similar patterns compounded by higher mortgage rates and growing inventory.
Shaky Buyer and Seller Confidence
Even those not directly impacted may find the experience unnerving. Consumer sentiment fell with heightened recession fears in September (Conference Board). The shutdown amplifies uncertainty, prompting some buyers to pause and wait for clearer market conditions and assured agency facilitation of transactions.
Sellers may hesitate to list, or consider canceling listings until the shutdown ends. This results in fewer transactions, increased negotiation, and potentially downward price pressure, especially in markets already slowing after years of significant growth.
What About Interest Rates?
The Federal Reserve isn’t directly influenced by the shutdown, but the broader economic fallout might influence its decisions. Prolonged shutdowns that reduce consumer spending could pressure the Fed to ease rates. Mortgage lenders face market volatility and a Fed rate cut doesn’t guarantee corresponding mortgage rate reductions.
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