Executive Summary
- The federal government shutdown has halted new and renewed federal flood insurance policies, impeding lending for properties in designated flood zones within the Sacramento region.
- Federal employees are facing difficulties securing or refinancing home loans due to their inability to provide proof of continued income during the shutdown.
- The shutdown is exacerbating economic uncertainty in the Sacramento housing market, contributing to fewer homes selling above list price and an increase in average days on the market.
The Trajectory So Far
- The ongoing federal government shutdown is directly impacting the Sacramento housing market by halting new and renewed federal flood insurance policies through FEMA’s National Flood Insurance Program, which are often a requirement for mortgage lenders in flood zones, and by preventing federal employees from providing proof of continued income necessary for home loan approvals.
Assessing Risk and Value
- The federal government shutdown introduces significant risks for investors in the Sacramento housing market by halting new federal flood insurance policies, which can impede lending and raise costs for properties in flood zones. Concurrently, delays in home loan approvals for federal employees reduce buyer demand and market liquidity, potentially contributing to longer days on market and downward pressure on property values, thus increasing overall market uncertainty and complicating risk assessment.
Expert Predictions and Forecasts
- Insurance expert Karl Susman indicates that while FEMA flood insurance is halted, private market options are available and could even be more affordable, and existing FEMA policy claims should still be processed.
- Housing analyst Ryan Lundquist predicts that the federal government shutdown will impede home loan approvals for federal employees due to their inability to provide proof of income, and generally complicate lending where FEMA flood insurance is required.
- Lundquist also forecasts that the shutdown negatively impacts the “psyche of buyers and sellers,” contributing to an already uncertain housing market characterized by more homes selling below list price and longer days on market, though slightly lower mortgage rates have recently driven a modest uptick in sales.
The ongoing federal government shutdown is significantly impacting the Sacramento region’s housing market, primarily by halting new and renewed federal flood insurance policies and complicating home loan approvals for federal employees. This dual effect is contributing to broader economic uncertainty within the local real estate sector, according to area experts.
Impact on Flood Insurance
The Federal Emergency Management Agency’s (FEMA) National Flood Insurance Program has ceased operations for new policies and renewals during the shutdown. Insurance expert Karl Susman noted that this pause directly affects property owners in designated flood zones, where mortgage lenders typically require flood insurance.
Housing analyst Ryan Lundquist, who operates the Sacramento Appraisal Blog, highlighted that the unavailability of FEMA flood insurance can impede lending in various parts of Sacramento. For those in urgent need of flood insurance, Susman suggested exploring options in the private market, which he indicated might not necessarily be more expensive and could even offer lower costs.
Susman, founder of the non-profit Insurance Consumer Guidance Society, clarified that existing FEMA policyholders who file a claim during the shutdown should still expect their claims to be processed. FEMA did not respond to inquiries regarding this story.
Challenges for Federal Employees
Beyond flood insurance, federal employees are facing difficulties in securing or refinancing home loans. Lundquist explained that these workers are struggling to provide proof of continued income, a critical requirement for loan approval, effectively putting their home transactions on hold until the shutdown concludes.
Broader Market Trends
The shutdown is exacerbating an already uncertain economic environment in the housing market. Lundquist reported a stark contrast to 2021, when nearly 57% of homes in the region sold above their original list price. Currently, only 25% of homes are selling above list price, while 63% are selling below it.
Active listings in the Sacramento region are now spending an average of approximately 80 days on the market. Lundquist indicated that while the shutdown doesn’t necessarily worsen existing economic conditions, it certainly does not help the overall “psyche of buyers and sellers.”
Despite these challenges, Lundquist noted a mildly positive trend from the previous month, with 235 more homes sold compared to September 2024. He attributed this modest increase to slightly lower mortgage rates observed over the past few months, suggesting that even small rate reductions can influence buyer activity.
Lundquist also clarified the distinction between Federal Reserve interest rate cuts and mortgage rates. He explained that Fed cuts primarily influence short-term rates for credit cards and auto loans, and do not definitively guarantee a decrease in mortgage rates, which can fluctuate independently.
Key Takeaways
The federal government shutdown presents immediate hurdles for the Sacramento housing market, specifically impacting flood insurance access and loan approvals for federal workers. This adds another layer of uncertainty to a market already experiencing shifts in sales prices and days on market, underscoring the sensitivity of real estate to broader economic and political stability.
