Real Estate Update: Housing Agencies, States Suffer “Staggering” Blows in Shutdown

The U.S. federal government has been shut down for three weeks now. The impact on everyday life for many has been serious. What might not be obvious is the impact on federal housing agencies and state-based real estate industries. Sellers and buyers are feeling the effects as well. In some states, the impacts are outsized because real estate is the basis of their financial health.

Overall, real estate holds up 20% of the national economy. Millions of jobs are involved.

The Shutdown’s Collateral Damage… So Far

The U.S. federal government has been shut down for three weeks now. This puts the shutdown among the country’s top three longest funding lapses in recent memory — number three on the list. The only longer shutdowns happened in 1995 (in the Clinton administration) and 2018 to 2019 (the first Trump term).

But at the time of this writing, we still do not know when the 2025 federal shutdown will end.

As long as it lasts, federal flood insurance applications are not being processed. Federal environmental permits may also be delayed. Many housing grants and other grants have been suspended. The U.S. Department of Agriculture has announced that it will cut states off from money to pay for Supplemental Nutrition Assistance Program (SNAP) benefits in November unless Congress opens the government within the next few days.

Each day, agency closures are costing the U.S. economy $400 million. The toll on real people is beyond calculation. Nine hundred thousand U.S. government staffers have been suspended from their work. Close to 700,000 are still working but not getting paid. The administration plans to permanently dismiss more than 10,000 federal employees. Thousands have already received their pink slips. Some are fighting through the federal court system.

With federal workers’ lives on hold, real estate markets all over the country are missing a normally dependable pool of home buyers.

And some of the capital city’s laid-off workers — more than 400 — are from the Department of Housing and Urban Development (HUD). The layoffs don’t just put these people out of jobs. The disruptions also put a damper on the vital work of supporting fair and affordable housing nationwide.

NAR says “the impact numbers are staggering.”

Review how “Department of Government Efficiency” firings led to a wave of selling in D.C. earlier this year.

Certain States Are Hurting More Than Others

When WalletHub reported on state-specific impacts of the shutdown, the National Association of REALTORS® broke it down. NAR points to some states as taking especially hard blows to their real estate sectors. Virginia and Maryland are reeling from federal contract and job losses.

The District of Columbia has borne the heaviest burden of all. As NAR reports, “a huge portion of the District’s residents are going without pay for an extended period of time.”

But of all the states, The National Association of REALTORS® says, Florida has the most at stake in the real estate sector.  In Florida, the real estate industry makes up about a quarter of the gross state product. Whenever buyers back off, the Sunshine State’s economy suffers visibly.  

Hawaii is a close second to Florida. So, the impact of federal job losses is also hitting Hawaii real estate hard. Loss of federal contracts is taking a heavy toll on markets in New Mexico and Connecticut, too.

The shutdowns are also hitting Delaware, Arizona, and Nevada hard. In places like Las Vegas, the shutdown is depressing an already-cooling housing market.

Cash Is King, as Government-Backed Lending Wilts

Spare a thought for the poor souls who were anticipating final approvals on loans backed by the Federal Housing Administration or the Department of Veterans Affairs when the shutdown began on the 1^st of October.  The FHA and VA are open, but with very few employees. USDA rural development loans aren’t available at all.  

People trying to buy with government-backed loans are struggling, especially if they aren’t already pre-approved and holding a commitment letter from a lender. Cash buyers, and buyers using loans backed by Freddie Mac or Fannie Mae, now have a massive edge in the market.

Cash buyers are in the best position of all. This is because mortgages (including Fannie Mae’s and Freddie Mac’s) can’t be approved until the applicant’s income gets checked against IRS tax records. It’s well known that the IRS is dealing with staffing cuts itself. So, mortgages are delayed generally.

Gavin Brenkus of Brenkus Realty Network points out that the federal holdup has potential buyers looking into state-run plans. For example, first-time buyers who apply for the Nevada Housing Division’s Home Is Possible plan can get loan assistance if they’re willing to complete the requisite buyer course. Nevada’s (and other states’) plans are not delayed by the current standoff in Congress. Teachers and others who work in public service roles may want to check their states for loan assistance and grants.

After the Shutdown, Then What?

According to Shannon McGahn, a VP and Chief Advocacy Officer at the National Association of REALTORS®:

Each additional day of uncertainty threatens programs that help buyers, sellers, and property owners navigate an already challenging market.

At some point, this has got to stop.

We won’t know the full story until after the stalemate in Congress has been resolved and federal funds are flowing again. But we do know the battering of this market will have prolonged effects. Delayed loan applications are piling up on desks, literally by the thousands. In the first few months after a reopening, the patient buyers who are sticking it out will turn up at closings in large numbers, as their loan approvals finally get to the finish lines.

With mass layoffs ensuring that workforces at federal agencies will be spread thin, what we’re going through now will reverberate into 2026, maybe beyond.

In any case, expect a lot of sellers to be out there, waiting to sell after the dust settles. There will be no bidding wars for a while. Sellers will not be calling the shots. Most buyers will not feel the need to hurry through transactions.

There’s one bright spot. At least sellers can rest assured that buyers will not be put off by 7% mortgage rates. This month, rates for 30-year mortgages have drifted downward, and remain below 6.5%.

Words to the Wise From NAR

The National Association of REALTORS® suggests that buyers and sellers expect delays. Parties might decide to build an extra month into timelines and agreements from now until… Well, we just don’t know how long.