Understanding How Government Shutdowns Impact Mortgage Rates

Key Takeaways

Government shutdowns can influence yields on 10-year Treasuries and impact mortgage demand, potentially leading to lower rates. However, various unpredictable factors may also lead to an increase in rates, making the overall effect hard to predict. Homebuyers should focus on their readiness rather than trying to time the market for mortgage rates.

How the Shutdown Could Shake Up Mortgage Rates

Government shutdowns create uncertainty in economic conditions and directly affect mortgage rates, primarily driven by yields on 10-year Treasury notes. Lenders often bundle mortgages and sell these mortgage-backed securities (MBS) based on the returns from these government bonds. During a shutdown, demand for 10-year Treasury notes typically increases, resulting in rising prices and falling yields—which can translate to cheaper mortgages for buyers.

Moreover, shutdowns can decrease demand for mortgages, as many federal employees do not receive their paychecks and government-sponsored loans such as FHA, USDA, and VA loans may be delayed. This situation can cause further downward pressure on mortgage rates.

However, it is important to note that this trend isn’t guaranteed. Competing forces may arise, such as fiscal concerns and uncertainty about economic direction. When government agencies cease operations, they stop releasing vital economic reports, which influence everything from the labor market to inflation. Without these reports, it becomes increasingly difficult for investors, policymakers, and the public to make informed decisions.

Jiayi Xu, a senior economist at Realtor.com, emphasizes that the longer the shutdown continues, the greater its potential impact on markets and monetary policy.

Why This Matters for You

For homebuyers, it becomes crucial to navigate the noise of market fluctuations and to make decisions based on personal readiness rather than predictions. The inability to predict mortgage rates adds complexity; therefore, if you find the right home, you can always refinance if rates drop later, but you cannot reclaim a home that has already been sold.

Lock a Rate Now or Wait? What Homebuyers Should Know

For those looking to purchase a home, assessing whether to secure a mortgage now or to wait can be daunting. Economists frequently offer forecasts about future rates, but these should be approached with caution. The difficulty lies in the unpredictable nature of interest rates.

Realtor.com economists predict minimal movements in mortgage rates during government shutdowns, with potential easing once the situation is resolved and crucial economic data is published. The potential for changes in inflation and the Federal Reserve’s actions post-shutdown adds layers of unpredictability.

Currently, many believe inflation will fall, possibly leading to a reduction in interest rates. However, events such as unexpected inflation spikes or robust job growth could alter this outlook dramatically.

Ultimately, timing the mortgage market is a challenging task, particularly with key economic indicators not being released during a shutdown. Therefore, the best advice remains: buy when you are financially prepared and find a home that suits your needs.

Today’s Mortgage Rate News

Stay informed with the latest updates on both new purchase and refinance mortgage rates. Be sure to check our daily reports to make the best decisions for your financial future.

How We Track the Best Mortgage Rates

We source national and state averages through the Zillow Mortgage API, which assumes a loan-to-value (LTV) ratio of 80%—indicating a minimum 20% down payment—and a credit score range of 680 to 739. These rates reflect what borrowers might expect when they receive quotes from lenders, though these can differ from advertised rates.

By understanding how government shutdowns may affect mortgage rates, homebuyers can make informed choices that align with their financial situation and long-term goals. Remember, navigating the housing market doesn’t have to be stressful; the key is to stay prepared and act when the time feels right for you.