The government shutdown, which started on Oct 1st, has left many of the 1.4 million federal workers without pay and is estimated to cost the economy between $7 billion and $14 billion. An important sector of the economy, the housing market, could also begin to feel the effects, particularly for those who use federally backed housing programs and loans. For example, FHA or USDA loans, which are used primarily by low-income and first-time buyers, could see delays in new home applications, closings, and approvals. The insurance required to secure these loans will also be impacted particularly for those who live in high-risk flood areas. With premiums surging and many insurance companies pulling out of states, buyers must utilize products such as the National Flood Insurance Program (NFIP) for coverage. Since the shutdown, NFIP has been unable to issue any new or renewal insurance policies, which could leave many without coverage and potentially impact almost half a million annual home sales.

Virginia, which has the second largest share of federal workers in the country, could also be disproportionally affected by the shutdown. Recently, the Northern Virginia area has seen prices dip and sales activity increase, but that could change if the market becomes increasingly unaffordable, especially for federal employees who are unpaid. Although data is not currently available, real estate professionals in the market are starting to see buyers pause their home-buying journey or move to more affordable areas. If the shutdown continues, the region could end up with more homes for sale, slower days on market and lower price appreciation.

As we enter the second month of the shutdown, it will be important to keep track of the potential long and short-term consequences for the housing market. This is happening in real time, so as we get more data related to the shutdown and possible ripple effects for the housing market, we will provide an update.

For more information on housing, demographic, and economic trends in Virginia, be sure to check out Virginia REALTORS®’ other Economic Insights blogs.