Shutdown Stalls Data, Hinders Housing Activity

The ongoing government shutdown is doing more than stalling paychecks and public services – it’s directly impacting the housing market and delaying crucial economic data the Federal Reserve was counting on ahead of its next policy meeting on October 29. Here’s what’s being affected, and why it matters.

Housing Market Disruptions

Several federal programs that support the homebuying process are facing disruptions or complete standstills:

• USDA rural home loans are currently on hold.
• FHA and VA loans remain operational, but limited staffing could slow down approvals, appraisals, and underwriting timelines.
• IRS transcript processing may be delayed – a common requirement for mortgage approvals.

For buyers and sellers, this adds uncertainty. Expect extended timelines and, in some cases, postponed closings.

A major sticking point is the temporary halt of the National Flood Insurance Program (NFIP) managed by FEMA, which provides mandatory flood insurance coverage for homes in over 22,000 communities. Without the ability to issue new policies, an estimated 1,400 home sales per day could be delayed or canceled, particularly in flood-prone areas. While existing policies can be transferred, the pause on new coverage is a major concern.

Missing Economic Data: A Fed Blindspot

The shutdown has also frozen the release of critical economic reports, starting with the September jobs report from the Bureau of Labor Statistics (BLS), originally due October 3. Weekly unemployment claims data have also been held up.

If the shutdown continues, there’s concern that upcoming reports – like the Consumer Price Index (scheduled for October 15) and even the October jobs report (scheduled for November 7) – could also be delayed. This leaves the Fed with limited insight at a time when it’s weighing two opposing forces: inflation that remains above target and growing signs that the labor market is losing momentum.

This tension was evident in the Fed’s September 17 rate cut, where officials pointed to “rising downside risks to employment” despite inflation concerns.

Why This Matters for Rates

When the Fed adjusts the Federal Funds Rate, they are changing the rate banks charge each other for overnight loans. It doesn’t directly set mortgage rates, but it does influence them, along with other economic factors.

With official government data missing, alternative sources like the ADP Employment Report have become more influential.

According to ADP, the private sector lost 32,000 jobs in September, a stark contrast to expectations for a 50,000-job gain. August figures were also revised downward, from a gain of 54,000 to a small loss of 3,000. Job losses were widespread, with small businesses shedding 40,000 jobs, medium-sized firms cutting 20,000, and seven out of ten sectors seeing declines.

This marked the third month of job losses in the past four, highlighting a softening trend. As ADP Chief Economist Dr. Nela Richardson noted, “Despite the strong economic growth we saw in the second quarter, this month's release further validates what we've been seeing in the labor market, that U.S. employers have been cautious with hiring.”

What’s Next for the Fed and Housing?

With weaker-than-expected private sector job data and no clarity from federal government reports, markets are increasingly anticipating another 25-basis point rate cut at the Fed’s October 29 meeting.

Until the government reopens and regular data releases resume, the Fed will be navigating in the dark, relying on incomplete data as it tries to steer the economy through a tricky stretch. Meanwhile, homebuyers, sellers, and lenders are facing growing uncertainty, as key housing programs stall and timelines stretch in an already-challenging market.

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By Shelly Williams