Housing Industry Is ‘especially Vulnerable’ To Effects Of Government Shutdown

The federal government shut down at midnight, leaving one of housing’s most critical programs — the National Flood Insurance Program (NFIP) — without authority to issue new policies.

That lapse could derail an estimated 1,400 home sales every day, throwing transactions in more than 22,000 communities into uncertainty.

Industry leaders warn that unless Congress acts quickly to restore NFIP, buyers and sellers in flood-prone areas could face canceled closings, higher costs from lender-placed insurance, or in some cases, the loss of financing altogether.

“Real estate transactions are especially vulnerable during a government shutdown, and NFIP’s stability is critical to keeping the market moving,” the American Land Title Association (ALTA) stated. “ALTA urges Congress to act quickly to extend NFIP and protect the American dream of homeownership.”

NAR: shutdown effects will be felt daily

The National Association of Realtors (NAR) said the shutdown will ripple quickly through the market.

Although most existing NFIP policies remain active — and can be assumed by buyers or transferred at closing — the inability to issue new policies is already creating complications.

FEMA will continue to pay claims as long as its funds last, but uncertainty grows the longer the shutdown continues, NAR added.

“According to NAR research, the NFIP supports roughly half a million home sales annually, generating 1 million jobs and contributing $70 billion to the U.S. economy,” said Shannon McGahn, NAR’s executive vice president and chief advocacy officer. “Each day that passes during the shutdown, potential real-life impacts will be felt in America’s housing market, which accounts for nearly 20% of the U.S. economy.

“That is why NAR urges Congress to reach a funding agreement to reopen the government, while we also continue to advocate for a stable, long-term reauthorization of the NFIP so that families, businesses, and markets can move forward with more certainty.”

Temporary waivers, lasting risk

During past shutdowns, lending regulators have temporarily suspended the flood insurance requirement, allowing transactions to close without coverage.

That could ease some bottlenecks, but industry officials warn it leaves both lenders and homeowners exposed if flooding occurs before NFIP is renewed.

“We are taking this critical information straight to lawmakers and working with the administration to ensure that NFIP resources are available and can be deployed during a shutdown,” McGahn said. “Each day a shutdown continues, the effects on the housing sector grow.”

A joint statement put out by agencies including the Federal Reserve Board, Federal Deposit Insurance Corporation and Farm Credit Administration offered guidance on flood insurance protocol during a shutdown.
“Lenders may continue to make loans without flood insurance coverage during this time but must continue to make flood determinations; provide timely, complete and accurate notices to borrowers; and comply with other applicable parts of the flood insurance regulations,” the agencies said. “In addition, lenders should evaluate safety and soundness and legal risks and should prudently manage those risks during the lapse period. The guidance also addresses the availability and use of private flood insurance.”

Further details on interagency flood insurance procedure can be found here.

Housing impacts beyond flood insurance

NFIP isn’t the only housing program facing disruption.

USDA’s rural housing loans will be suspended, with closings delayed or placed at lenders’ risk.

The IRS — depending on its contingency staffing — could halt tax transcript processing, a key requirement for many mortgage applications.

The Department of Housing and Urban Development will continue some FHA operations, but staffing shortages are likely to slow approvals and servicing.

Meanwhile, the Department of Veterans Affairs says it will continue guaranteeing home loans, though reduced staffing could create appraisal and eligibility delays.

Shutdowns have historically been unpopular with both consumers and Realtors. In a past NAR survey, about three-quarters of members reported no direct impact on closings, but 11% saw deals delayed or lost.

This time, industry groups say the stakes are higher given market volatility, mortgage rate pressure and the sheer scale of the NFIP’s role in home sales.

Unique peril for Washington, D.C.

Bright MLS Chief Economist Lisa Sturtevant said Washington, D.C.’s housing market is more vulnerable to a government shutdown than any other area in the nation, due to the region’s heavy reliance on federal jobs and contracts.

“The region has been caught up in a series of other federal initiatives, including DOGE layoffs and budget cuts, return-to-the-office mandates and the deployment of the National Guard in the District of Columbia,” she said. “The current shutdown is also different because the White House has directed federal agencies to plan for permanent workforce cuts, firing staff in roles that do not support the Trump administration’s initiatives.

“In prior shutdowns, non-essential federal workers were sent home but returned after the shutdown ended and received back pay.”

Prior to the shutdown, the Washington, D.C., housing market was already lagging behind other Mid-Atlantic markets — with higher inventory, slower price growth, and longer listing times. Still, these factors have not resulted in a significant downturn for the region’s housing market, Sturtevant said.

U.S. Census data shows that roughly 14% of the Washington, D.C., metro area’s workforce is employed by the federal government.

Some localities, however, have much higher concentrations and are therefore more vulnerable.

In D.C., Arlington, Va., and Alexandria, Va., nearly one in five workers hold federal jobs — compared to just 8% in Loudoun County, Va.

“Existing homeowners who do not have to move, or who have a significant amount of equity in their homes, won’t necessarily feel an impact,” said Sturtevant. “Prospective buyers with jobs not tied to the federal government will find opportunities to get into the market with more inventory and softer prices.

“Longer-term, the Washington D.C. area will always be the seat of the federal government and will also be a major metropolitan area economy, attracting new jobs and residents and the housing market will rebound.”