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This past month of October saw our federal government come to a standstill. The shutdown occurred as lawmakers could not come to an agreement on the fiscal budget. While most people think of matters involving TSA, air traffic controllers, and other government employees, many do not realize that the federal government shut down also has an effect on mortgages.
The government shutdown generally creates a feeling of uncertainty amongst investors. Whenever there is uncertainty in the market, investors gravitate towards safe assets like treasury bonds. This overall has a positive effect on mortgage rates. Since the shutdown, we have seen a nominal decrease in mortgage rates.
Less obvious to the public is the disruption of federal services critical to the housing industry. Agencies that have to process government backed loans like the Federal Housing Administration (FHA loans), the Department of Veterans Affairs (VA loans), and USDA (rural loans) are experiencing extended delays. Other flood insurance programs are also delayed. What will be interesting is the lack of economic data releases such as job reports, inflation reports, etc., and the effect on lenders as they typically use these economic indicators to set rates and future lending expectations.
Fun fact the longest government shutdown was in 2018-2019 during the first Trump presidency. That shutdown lasted 35 days. It is estimated that there was a $3 billion loss in economic activity. While a shut down did not lead to a recession, time will tell what happens after the current shutdown. Historically, mortgage rates have dropped significantly after each recession.
