Government shutdown could bring mortgage rates down

The first government shutdown in six years could bring mortgage rates down as heightened economic uncertainty motivates institutional investors to shift money out of the stock market and into safer bets like bonds and mortgage-backed securities.

On the first day of the shutdown Wednesday, yields on 10-year Treasurys^[1], a barometer for mortgage rates, fell 4 basis points, while mortgage rates held steady. A basis point is one hundredth of a percentage point.

“The government shutdown will hold up key data releases and likely will drag on economic growth,” economists at Pantheon Macroeconomics said in their latest U.S. Economic Monitor bulletin. “Another [1/4 percentage point] easing from the Fed at its next meeting seems like prudent risk-management.”

Federal Reserve policymakers will “be flying blind” at their Oct. 29 meeting if the government shutdown continues, with the Bureau of Labor Statistics^[2] (BLS), Bureau of Economic Analysis^[3] and Census Bureau^[4] having ceased data collection, Pantheon economists noted.

The homepage of the Bureau of Economic Analysis^[5] notified visitors on Oct. 1, 2025 that the site is no longer being updated due to a federal government shutdown.

Michael Zezas

“We could see Treasury yields fall and equity markets wobble,” Michael Zezas, global head of fixed income research at Morgan Stanley, said in an analysis^[6]. “Those effects could be temporary, but that volatility could easily be amplified by having to price in the risk of not getting economic data.”

Morgan Stanley economists estimate that each week of a government shutdown could reduce gross domestic product (GDP) by 0.1 percent, but that once federal employees return to work “the money that was withheld is typically put back into the economy, helping offset the initial drag.”

Adding to the confusion, the Trump administration’s controversial pick^[7] to head the BLS, economist E.J. Antoni, has withdrawn^[8] from consideration for the post. Antoni was to have succeeded BLS Commissioner Erika McEntarfer, who Trump fired in August when estimates of hiring in May and June were revised down by 258,000 jobs.

Futures markets tracked by the CME FedWatch tool^[9] on Wednesday put the odds of an Oct. 29 rate cut at 100 percent, up from 92 percent on Sept. 24. Bets placed by futures markets investors suggest the odds of at least three Fed rate cuts by March 2026 have risen from 56 percent last week to 67 percent on Oct. 1.

Rates on 30-year fixed-rate loans hit a 2025 low of 6.17 percent on Sept. 16, but have been gradually edging back up, hitting 6.31 percent on Tuesday, according to lender data tracked by Optimal Blue^[10].

Mortgage rates near 2025 lows

Lender surveys by the Mortgage Bankers Association show demand for mortgages was down 13 percent last week compared to the week before, with requests to refinance down 21 percent and purchase loan requests down by a seasonally adjusted 1 percent.

Joel Kan

“Mortgage rates increased to their highest level in three weeks as Treasury yields pushed higher on recent, stronger than expected economic data,” MBA Deputy Chief Economist Joel Kan said, in a statement. “After the burst in refinancing activity over the past month, this reversal in mortgage rates led to a sizable drop in refinance applications, consistent with our view that refinance opportunities this year will be short-lived.”

Compared to a year ago, refi applications and homebuyer demand for purchase loans are still up 16 percent.

Source: Mortgage Bankers Association Weekly Applications Survey^[11].

The MBA’s seasonally adjusted purchase loan applications index declined last week for the first time in September, falling to 172.7 during the week ending Sept. 26.

Demand for purchase loans had climbed during the first three weeks of September, hitting the second-highest level of the year after adjusting for seasonal factors during the week ending Sept. 19.

Mortgage rate forecasts diverge

Source: Fannie Mae^[12] and Mortgage Bankers Association^[13] September 2025 housing forecasts.

In a Sept. 19 forecast^[14], MBA economists predicted mortgage rates will stay in the mid-sixes next year, averaging 6.4 percent.

Fannie Mae economists expect rates on 30-year fixed-rate mortgage rates will drop to an average of 6.2 percent during the first quarter of 2026, and continue falling to 5.9 percent during Q4.

MBA economists are looking for unemployment to rise to 4.8 percent next year, and for modest, 1.3 percent annual growth in gross domestic product (GDP).

Fannie Mae economists expect the job market and economy will both perform better, predicting unemployment will peak at 4.5 percent next year and that GDP growth will hit 2.3 percent in Q2 and Q3.

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Email Matt Carter^[17]

References

1. ^{^} 10-year Treasurys (finance.yahoo.com)
2. ^{^} Bureau of Labor Statistics (www.bls.gov)
3. ^{^} Bureau of Economic Analysis (www.bea.gov)
4. ^{^} Census Bureau (www.census.gov)
5. ^{^} homepage of the Bureau of Economic Analysis (www.bea.gov)
6. ^{^} analysis (www.morganstanley.com)
7. ^{^} controversial pick (www.inman.com)
8. ^{^} withdrawn (www.friendsofbls.org)
9. ^{^} CME FedWatch tool (www.cmegroup.com)
10. ^{^} Optimal Blue (www2.optimalblue.com)
11. ^{^} Weekly Applications Survey (www.mba.org)
12. ^{^} Fannie Mae (www.fanniemae.com)
13. ^{^} Mortgage Bankers Association (www.mba.org)
14. ^{^} Sept. 19 forecast (www.inman.com)
15. ^{^} Mortgage Brief Newsletter (www.inman.com)
16. ^{^} Click here to subscribe. (www.inman.com)
17. ^{^} Email Matt Carter (www.inman.com)