A Federal Government Shutdown May Push Mortgage Rates Lower
Time to read [6 minutes]
Takeways
A shutdown cuts GDP, erodes confidence, and pushes mortgage rates lower.
Federal shutdowns weaken the US dollar, disrupts services, and raises recession risks.
Housing may seem some benefit but instability largely offsets any tangible real estate boost.
I made a mistake with my Mailchimp settings on Friday, and many of you didn’t receive my post: Take Stock In Housing Market Watchers Rewarding Scarcity. I tackle NIMBY and stock investors.
but I digress…
How crazy is this (not my son’s 916 lb pumpkin above)? The federal government is expected to run out of money tomorrow (my birthday) at 11:59 p.m., and those who only care about mortgage rates should be pleased about it. Last March, Congress passed a seven-month continuing resolution to kick the can down the road, and it is expiring. Rooting for government dysfunction in Washington and its potential damage to the economy should lead to lower mortgage rates. It’s as if we can only have a normalization of housing market conditions if hundreds of thousands of federal workers lose their jobs. Having grown up in the Washington, D.C. metro area (the DMV), many of my friends’ parents worked for the federal government. They earned significantly less than they could have in the private sector, but there was greater job stability. In other words, the federal government was able to attract higher-quality employees for less money by maintaining stability. That should be included in the damage calculus in the future beyond GDP. Here is a list of all federal government shutdowns.
How Does A Shutdown Lower Mortgage Rates?
Each week of a government shutdown is expected to reduce the US GDP $7 billion per week, or by 0.1 to 0.2%. Often, a large portion of the lost GDP can be recaptured shortly after the shutdown ends, especially if it is brief. The administration has indicated that this shutdown would be significant in scale. Many furloughed federal workers might receive their back pay, but these actions erode consumer confidence, creating more uncertainty. In fact, the current administration wants to convert furloughs to workforce reductions. The longer the shutdown lasts, the greater the damage it causes to the economy. The greater uncertainty shifts investors into safer assets, which drives their prices up and their yields lower; then, mortgage rates fall.
What Does A Shutdown Look Like?
Shutdowns weaken the USD, which pushes up asset prices and operating costs. Here are some specific examples of what often happens during a shutdown.
National parks and museums often close, leading to lost tourism revenue.
Air travel can be delayed if TSA and air traffic controllers work without pay or call out.
Courts, regulatory agencies, and other federal offices suspend activities, creating backlogs.
Data collection for key economic releases (like jobs reports) may be postponed, impacting policymaking and market forecasts.
Final Thoughts
A government shutdown increases the risk of recession, which can result in lower interest rates and possibly lower mortgage rates. Services provided by Fannie Mae, Freddie Mac, and the VA would continue, but possibly at a significantly reduced level.
Typically, a weaker dollar caused by a shutdown makes it cheaper for foreign buyers of real estate; however, the threat of immigration policy intimidation offsets any benefit of a weaker dollar.
The Actual Final Thought – I remember hearing this for the first time in college, and it was already a decade old. The title somehow seems appropriate for this turbulent economic time in the US.
Recent Presentations
The Core Truth Podcast w/ Peter Hernandez
This morning I did a interview with Peter Hernandez on his The Core Truth podcast this morning and I thought you’d be interested. The episode “Jonathan Miller on Compass Acquiring Anywhere” was a good discussion about my post on Housing Notes and beyond: Compass Paid Double Nickels On The Dime For Anywhere. Peter is so good at getting the heart of any matter.
Monday Mailboxes, Etc. – Sharing reader feedback on Housing Notes.
This is a great piece on gambling and real estate Jon. I personally I’m not a gambler, though being in the kind of real estate I’ve been in going on 4 decades, I’d venture to say that in fact I’m quite a big gambler.
I regularly read your newsletter and almost always come away learning something new and agreeing with your perspective. Your recent discussion on the NYC Airbnb crackdown and its impact on hotel rates was especially interesting. One thought I had, though, is whether part of the hotel price increases you observed may simply reflect the broader inflationary environment of the past few years—particularly the surge in labor and service costs. In nominal terms, rates are clearly up, but if adjusted for inflation, the incremental impact of the Airbnb restrictions might turn out to be smaller than it first appears. Either way, your analysis raises an important point about the difference between perceived and actual drivers of pricing trends.
Did you hear about Buyer lawsuit against Zillow?
I don’t think Multiple Dwelling Law discussion belongs there at all. The Registration requires folks to comply with the legal occupancy in the construction code and housing maintenance code, both in the Administrative Code (albeit occasionally modified by the state and borrowing definitions from the MDL). The reason I’m touchy about MDL is that it doesn’t apply to 1&2 family homes, which are also covered by LL18 and the City’s rules governing STRs. Also, the only one who say this “Despite the intent to lower rents and increase affordability, these laws did not make NYC housing more affordable” is Airbnb. Noone said it would lower rents, rather it was meant to prevent the rent increases that were linked to short term rental activity. And to provide a path for hosts to make sure their rentals were legal.
Did you miss the previous Housing Notes?
September 26, 2025
Take Stock In Housing Market Watchers Rewarding Scarcity
Image: Stock Charts dot com