The Shutdown Paradox: Why Mortgage Rates Fell While Closings Stalled

The government shutdown that began on October 1, 2025, and has stretched to become the longest in U.S. history, has had an indirect but noticeable effect on the standard 30-year home mortgage, primarily by contributing to a slight, temporary decrease in rates and introducing significant friction and delays into the closing process.

Here is a breakdown of the two main effects over the past four weeks

1. Indirect Effect on Mortgage Rates (Lower Rates)

Mortgage rates are primarily influenced by the 10-Year Treasury yield and the Federal Reserve’s actions, but the shutdown has added a layer of market uncertainty that generally favors lower rates.

Factor	Effect on Rates	Rationale
Flight to Safety	Yields fell $\implies$ Rates dropped	A government shutdown is a sign of political instability and economic uncertainty. This causes investors to sell off riskier assets (like stocks) and buy the safest assets in the world: U.S. Treasury bonds. Increased demand for Treasuries drives their price up and their yields down.
Delayed Economic Data	Volatility/Downward Pressure	The shutdown halted the release of crucial economic reports (like the monthly jobs report and key inflation data) that the Federal Reserve and bond investors rely on. The lack of data tends to increase uncertainty, sometimes fueling the “flight to safety” trend, which also helps keep rates lower.
Economic Drag	Downward Pressure	The prolonged shutdown causes a drag on the economy, as hundreds of thousands of federal workers are furloughed or working without pay. This weakened economic outlook can put downward pressure on rates.

The Result on the 30-Year Fixed Rate:

While the general trend in the past few months has been downward due to other factors (like the Federal Reserve’s recent rate cuts and lower inflation readings), the government shutdown reinforced the trend by causing the 10-year Treasury yield to fall to around 4.0%-4.1% in recent weeks. As a result, the average 30-year fixed mortgage rate has been hovering in the low 6% range (around 6.00% to 6.25%) and has continued to decline slightly in the face of the political and economic turmoil.

2. Direct Effect on the Mortgage Process (Delays and Stalls)

The most tangible and negative effect for home buyers has been the delays and outright stoppage of government-backed loan programs and essential verifications.⁵

Area of Impact	Effect of Shutdown
Government-Backed Loans	Significant Delays/Stoppages
IRS Tax Verifications	Closing Stalls
Flood Insurance	Sales Halted

In short: Over the past four weeks, the shutdown has created a dichotomy: it has been a mild tailwind for lowering the 30-year fixed mortgage rate, but a severe headwind for actually closing a home sale, especially those involving government-backed loans or properties in flood zones.