Government shutdown may stall 5 state’s real estate markets

Now entering its third week and with no end in sight, the effects of the government shutdown are being felt across the country. 

But some states are feeling the hurt far more than others. 

It’s estimated that the shutdown is costing the economy $400 million per day. In total, 900,000 federal employees have been furloughed, and nearly 700,000 are working without pay.

Among them, hundreds of U.S. Department of Housing and Urban Development (HUD) employees received layoff notices Friday, affecting fair housing and public housing offices, with significant reductions in field offices across the U.S. 

The shutdown has also affected mortgage processing due to staffing shortages at the IRS, FHA, and VA, while the USDA has halted all loan application operations. 

While places like Virginia and Maryland are feeling the pain due to the most federal jobs and most federal contract dollars lost, five other states are being most affected due to the decrease in real estate activity in the area. 

The most affected states during the shutdown

At the start of the third week of the shutdown, WalletHub released its report on the most and least affected states during the government shutdown. 

Using five distinct metrics, it compared all 50 states as well as the District of Columbia to see how each economy was fairing. 

Among those metrics is “real estate as a percentage of gross state product (GSP)”—or how much of a state’s economy comes from real estate activity. 

According to its research, the top states affected for this metric due to the shutdown are Florida, Delaware, Arizona, Hawaii, and Nevada.

“Real estate accounts for nearly 20% of the U.S. economy, touching every community and driving millions of jobs,” writes NAR’s Executive Vice President and Chief Advocacy Officer Shannon McGahn. “Each additional day of uncertainty threatens programs that help buyers, sellers, and property owners navigate an already challenging market.”

Interestingly, though the District of Columbia came in as the most affected area of the country overall, it came in last in terms of its real estate economy. 

As for the top 5, the impact numbers are staggering. In Florida, for instance, the real estate industry accounted for $381.4 billion or 24.1% of the gross state product in 2023, the largest share of any state, according to a May 2024 report from the National Association of Realtors®.

With access to mortgages limited due to processing hangups, this could have a major effect on the state’s economy. 

“Given Florida’s large share of national housing activity, even a modest pullback in buyer engagement could visibly nudge national sales and inventory metrics,” says Realtor.com® senior economist Anthony Smith.

Though the margin decreases going down the list, the effect is relative. Real estate makes up nearly 23% of Hawaii’s GSP, the fourth-highest percentage in the nation, with its real estate accounting for $24.8 billion. And yet, Hawaii comes in as the second most affected state by the shutdown. 

How will DC fair if shutdown continues

Perhaps unsurprisingly, Washington, DC, is the most affected area by the shutdown, landing in the top 3 of every metric WalletHub ranked. 

It tied for the top spot when it came to share of federal jobs against total employment of a place, along with Maryland and Hawaii, and then again for federal contract dollars per capita held back, along with Virginia, Maryland, New Mexico, and Connecticut.

According to the report, over 25% of all jobs in DC are related to the federal government, the highest share in the nation by far, meaning that a huge portion of the district’s residents are going without pay for an extended period of time.

In terms of real estate, the industry accounted for $18.2 billion or 10.4% of the gross state product in 2023, according to the NAR. Earlier in the year, the first round of DOGE layoffs saw some of those government workers who lost their jobs sell their homes and move away. With so many more let go during the shutdown, another exodus of the area could be on the horizon. 

What’s next

It’s unclear how long the shutdown will last, but with each passing day, concerns mount further on the effect this will have on the housing industry. 

Congresswoman Maxine Waters (D-CA), the top Democrat on the House Financial Services Committee, released a statement after the firing of approximately 442 HUD employees, many of whom worked in the Fair Housing and Equal Opportunity division. 

“This is cruel, dangerous, and disgraceful,” Waters wrote.

“By firing 442 HUD employees, many of whom support housing counseling and community development programs, [President Trump] is deliberately weakening an agency that millions of Americans depend on.”

The full effects of those firings won’t be felt until the government reopens—hopefully soon enough to prevent further damage.