How the 2025 Government Shutdown Is Disrupting the Housing Market

By Jack Cutrone

It’s never a good sign when Congress is gridlocked. But when a federal government shutdown drags on, the real casualties aren’t just political, they’re very tangible in local real estate markets. As we’re seeing now, the shockwaves are already reaching us here on Long Island and in other areas like Florida, and depending on how long this lasts, I expect we’ll feel it on a larger, national level.

What Happened:

On October 1, 2025, the federal government entered a shutdown after Congress failed to pass appropriations for the new fiscal year.  The result: many agencies have furloughed staff, and lots of programs that homebuyers and sellers depend on are either paused or strained.

In many areas across the nation, we’re already seeing signs of strain. Realtor.com reports that Florida is hit the worst, with so much of the real estate market dependent on flood insurance, environmental permitting, and mortgage processing, the shutdown is putting closings in jeopardy.

Where the Pressure Is Showing First

Let me walk you through the most critical stress points I’m watching, and what buyers and sellers should expect:

Flood Insurance & Closing Risk in Vulnerable Areas

One of the most immediate risks comes in coastal and flood-prone zones. The National Flood Insurance Program (NFIP) is suspended during the funding lapse. That means buyers in areas requiring flood coverage are stuck…without a policy, they often can’t finalize closings.

Some estimates suggest that every single day of shutdown puts around 3,600 home closings at risk nationwide.

Long Island Is Already Feeling the Impact

Over the weekend, many areas across Long Island experienced significant flooding due to coastal storms, with neighborhoods in both Nassau and Suffolk counties reporting water damage, road closures, and overwhelmed drainage systems.

In normal times, this would already create a spike in concern from buyers, insurers, and lenders. But with the National Flood Insurance Program frozen due to the shutdown, the situation becomes even more urgent: buyers can’t finalize closings on homes in flood-prone zones without flood insurance in place.

That means deals are now being paused or jeopardized, even if everything else is ready to go. For us on Long Island, where thousands of homes fall within FEMA-designated flood zones, this shutdown hits close to home, literally.

Mortgage & Loan Program Delays

Conventional mortgages are less vulnerable , many lenders are continuing their work…but things backed by federal programs (like FHA, VA, USDA) are more exposed.

A big bottleneck: the IRS’s verification of tax returns (Form 4506-T). If that service is shut down or delayed, lenders can’t complete underwriting in many cases.

If the shutdown drags on for weeks, these types of delays could begin cascading… pushing closing dates back, or even stalling deals entirely.

Supply, Permitting & New Construction

Across the nation, new construction is vital to counter inventory shortages. But if environmental agencies or permitting offices are down or under-resourced, new builds slow. That tightens supply and could push further upward pressure on prices.

Long Island’s growth is at risk too. Many new developments on Long Island depend on timely permitting, infrastructure support, and federal coordination. With recent warnings from local organizations about frozen federal review and reimbursement processes putting “infrastructure and development uncertainty” over our region, new construction is already facing headwinds. 

In short: even if your project is local, the ripple effects of a shutdown can slow approval, raise costs, and push back your timelines.

Buyer Confidence & Market Psychology

Even buyers who aren’t directly dependent on federal programs may become more cautious. Uncertainty breeds hesitation. If buyers delay, sellers will feel it, especially in more marginal or luxury properties.

What This Means Locally (and for You)

-If you’re planning to buy in a flood zone or waterfront area, be extra careful about closing timelines. Secure your flood insurance early or explore alternatives.

-If your mortgage requires FHA, USDA, or VA approval, expect possible delays or extra steps. Work closely with your lender, and be proactive.

-Sellers should be aware that buyers might ask for more time or protections in contracts (e.g. contingencies tied to insurance or federal approvals).

-For both sides, communication is essential. Stay close to your agent, mortgage officer, and any professionals involved so adjustments can be made.

-And if you’re in a market not heavily reliant on federal backing, the shock may come slower, but it can still arrive in the form of cooling demand if buyer sentiment sours.

Why Long Island Should Pay Attention

While Florida has been hit hardest early on, thanks to its heavy reliance on flood insurance and a high volume of waterfront properties, the ripple effects of the federal government shutdown extend far beyond the Sunshine State. Regions across the country, including here on Long Island, are now facing similar vulnerabilities tied to flood insurance availability, stalled permitting, and delayed mortgage processing.

Long Island, with its extensive coastline and flood-prone zones, is uniquely exposed. Many real estate transactions here require National Flood Insurance Program (NFIP) coverage, and the shutdown’s freeze on issuing or renewing those policies puts local deals at risk. Meanwhile, new construction across Nassau and Suffolk counties often depends on timely approvals, some of which may involve federally backed processes or infrastructure coordination.

What starts as a slowdown in one region, whether Florida or anywhere else, can quickly spill into national buyer confidence and contract stability, especially in areas like Long Island where weather, insurance, and permitting are already complex. These shutdown-driven delays and uncertainties add friction to an already cautious market, and the longer it drags on, the more local communities will feel the strain.

My View & Advice (Timely, Not Theoretical)

I believe this shutdown could become one of the more consequential policy-driven disruptions the housing market has seen in some time, especially if it continues for a month or more.

That said, not all is lost. With the right strategy, deals can still move forward. Preparation and flexibility are what separate those who succeed from those who stall. If you’re buying, selling, or just keeping a pulse on your local market, let me be your guide through uncertainty.

If you want help assessing your situation: from timing your listing, understanding risk in your area, or reading contract language for protections, please reach out. I’ll walk you through what we can control in times where so much feels unpredictable.

Jack Cutrone

Jack@PatriotRealProperties.com

631.926.9592