This week was dominated by the U.S. government shutdown and its ripple effects across housing, credit markets, and economic data. With Congress stalled and the Senate in recess, expectations for a prolonged shutdown have grown, along with market confidence in further rate cuts from the Federal Reserve. The absence of critical economic data, like the September jobs report, construction spending, and jobless claims, has left the Fed in a data void ahead of its policy meeting at the end of this month. Markets are now fully pricing in a 25-basis point rate cut this month, with nearly 90 percent odds of another in December, as weaker labor market indicators, such as ADP showing a 32k job loss for September and a downward revision to August, reinforce the narrative of economic fragility.
The Challenger job cuts report showed layoffs dropped in September, but year-to-date totals remain at the highest level since 2020. Job openings remained stagnant, the quit rate fell, and hiring plans are at their lowest since 2009. Consumer confidence also dipped to a five-month low, with more unemployed people than available jobs for a second consecutive month, a dynamic last seen in early 2021. Although layoffs remain low, the persistent weakness in hiring suggests the labor market may be losing steam, just as fiscal uncertainty ramps up.
Meanwhile, mortgage lenders grappled with practical shutdown-related disruptions. The FHFA, under Bill Pulte's leadership, issued guidance that allows more flexibility in employment and flood insurance verification when federal data is unavailable, especially for government workers. Additionally, the National Flood Insurance Program's lapse in authority is disrupting an estimated 1,400 home closings per day, raising concerns about delayed transactions in high-risk areas. Fannie Mae and Freddie Mac also began preparing alternative processes, signaling that the GSEs are trying to maintain housing liquidity amid the broader federal paralysis.
Mortgage applications dropped 12.7 percent for the week ending September 26, according to MBA data, coinciding with a modest uptick in rates. Freddie Mac reported that average 30-year fixed rates rose to 6.34 percent, still significantly lower than recent highs, but high enough to dent borrower demand. And rate volatility wasn’t the only story. FICO made headlines by announcing it will license its scores directly to lenders through a new delivery model, bypassing the credit bureaus and triggering a sharp selloff in shares of TransUnion, Experian, and Equifax. This shift could lower costs and bring more pricing transparency to mortgage underwriting, potentially impacting how credit risk is assessed industry-wide.
If the government shutdown continues, we could see further delays in inflation data, potential disruptions to MBS market oversight, and even mass federal worker layoffs if President Trump’s administration follows through on its threats. The lack of clarity on both economic fundamentals and fiscal policy leaves the fourth quarter off to a murky start.