Why California’s housing market is still holding up for the time being

The federal shutdown is roiling housing markets in states like Florida, but California’s have hardly flinched.

“Overall, California’s housing market has shown no signs of major shifts since the shutdown began,” says Realtor.com® senior economic research analyst Hannah Jones. “New listing activity has increased year over year, time on market is stable and inventory growth is slowing, in line with recent trends.”

It’s a striking finding considering how vulnerable California could be. The state ranks sixth nationally in both FHA and VA loan volume, ninth in total USDA residential investment, and sixth in the number of active National Flood Insurance Program (NFIP) policies – all federal programs now halted or severely postponed as the shutdown enters its third week.

It’s also important because of California’s sheer size: real estate makes up 17.6% of California’s economy, contributes roughly $680 billion to the state’s GDP, and supports hundreds of thousands of jobs in construction, real estate and home services, according to the National Association of Realtors®.

But resilience has its limits, and the longer the shutdown lasts, the more pressure arises.

“Every day the shutdown continues, these challenges become even greater,” writes NAR Executive Vice President and Chief Advocacy Officer Shannon McGhan.

“For millions of Americans, this means uncertainty about closing dates, delayed access to affordable housing and higher costs as markets respond to instability,” she added. “For the broader economy, this risks a slowdown in growth in one of the country’s most important sectors.”

California is quiet

So far, the data indicates stability for the Golden State.

The number of new listings is up compared to a year ago, market duration is largely unchanged and inventory growth continues to slow in line with national trends. That stability reflects who controls the California market – and how they buy.

Most borrowers in the state rely on conforming loans, which have not been disrupted by the federal shutdown, while cash and jumbo buyers remain active in expensive metro areas like Los Angeles, San Francisco and San Jose.

“Buyer demand remains intact in California because high-income, cash-rich, high-volume buyers, common in expensive California metros, are not directly affected by furloughs,” Jones explained.

This activity highlights an important part of the federal government that is still operating despite the shutdown: the IRS’s Income Verification Express Service (IVES), which helps lenders verify borrowers’ tax information and keep mortgage approvals moving.

Curtis Knuth CEO of a credit reporting and verification agency Service 1stsays his company has seen no disruption in the delivery of the thousands of tax statements it requests from the IRS each week as part of its mortgage investigation.

“For the divisions we work with, there is no impact,” he tells Realtor.com. “Normal running times remain in place.”

Knuth explains that the IVES itself is funded by user fees, so it does not need a new spending bill from Congress to continue normal operations.

Lisa Binkleythe COO of Service 1st, says that approximately 97% of tax transcript requests through IVES are currently processed within three days, which is comparable to turnaround times before the shutdown.

This is good news for homebuyers as the government shutdown continues with no end in sight.

First signs of tension among government-backed loans

But beneath that surface of calm, early fractures are forming.

“I have seen a slight dip in buyer enthusiasm in recent weeks, especially among first-time buyers using FHA or USDA financing,” says Bastien Wissmanna New properties & Investment specialist.

Although these sales represent a small portion of California real estate, the size and importance of these programs cannot be underestimated. In June 2025 alone, California buyers took out $1.9 billion in FHA loans – the third-highest volume in the country, according to HUDs Portfolio snapshot of single-family homes.

While less than 1% of California homebuyers rely on USDA loans, those who do often have few alternatives. And since 2024, the state has received nearly $20 billion USDA funding for single- and multi-family homes, ranking ninth nationally in terms of total investments.

Unlike conforming loans, these programs rely on federal staffing and approvals, both of which are now frozen. “The lack of clarity about the government’s activities calls for caution, even among qualified buyers who might otherwise be eager to move forward,” Wissmann said.

Meanwhile, sellers are adapting instead of retreating. “Most are willing to extend the closing process a little longer or lower prices slightly to keep deals moving, an acknowledgment of caution and optimism,” Wissmann added.

Closing delays hit builders first

But while the shutdown’s impact on the market as a whole has been largely muted, builders are starting to feel the drag.

“Builders and developers are starting to complain about the slower processing of permits and inspections,” says Wissmann. “These small delays can cause ripples in projects, especially multi-unit housing projects.”

While many permits are issued by local authorities, those authorities sometimes need federal coordination to move the process forward.

“Right now the impact has been minimal, but the longer the shutdown lasts, the more those assessments and permitting procedures will become clogged,” Russell Riggssenior regulatory representative for NAR, told Realtor.com last week. “After four weeks you will really start to see the effects clearly.”

As we approach the four-week milestone of the shutdown, Gary Mkrtichyana developer and general contractor with Opus builders in Los Angeles, says he has experienced significant delays since early October.

He currently oversees several new construction projects in Hollywood that require city-managed infrastructure, from sewer connections to relocating fire hydrants. But lately, even routine requests have gone unanswered.

“I’ve never seen this kind of slow movement,” he says.

For developers, these delays can have costly consequences.

“I paid almost $20,000, which was lost because they cannot act efficiently and give us what we need to keep our projects running,” says Mkrtichyan.

A hidden flood risk

It has been widely reported that the expiration of the National Flood Insurance Program put 4.7 million policies at risk at the height of hurricane season. But in California there is an additional danger.

In wildfire-affected areas, burned hills become more vulnerable to flooding. Without vegetation, the ground cannot absorb rain, increasing the risk of flooding, even for properties located outside special flood risk areas.

FEMA estimates that the flood risk remains significantly higher for at least five years after a major wildfire. Yet only about 4% of homes in wildfire-affected states carry federal flood insurance, leaving most owners — and many first-time buyers — exposed to stagnant federal coverage.

Less than a year after the devastating fires in Palisades and Eaton, that’s an especially serious problem for Californians still rebuilding. With the NFIP stalled during the federal shutdown, no new or updated policies can be issued.

For buyers in high-risk areas, that bureaucratic pause can bring home closings to a sudden halt.

“If the shutdown continues, home sales may experience insurance delays. For homes requiring new/renewed flood insurance, the NFIP suspension jeopardizes closings and slows transaction activity,” he explained. Jones.

The lag effect: when stability changes

For now, California’s housing market numbers look calm, but in a market so interconnected, the effects of a freeze as long or extensive as this one are unlikely to remain invisible for long. The real risks will come later, as the slowdown impacts quotes, loans and sentiment.

“If homes sit idle longer due to mortgage approval issues or insurance issues, delistings or price reductions may increase,” Jones says. “This is especially relevant if consumer sentiment changes or fear of the shutdown increases, which could convince some buyers to wait.”

The real estate industry represents roughly 18% of California’s $4.1 trillion economy—nearly one-sixth of the entire U.S. GDP. Each median-priced home sale generates approximately $230,000 in local economic activity supports three lanesfrom contractors and appraisers to movers and furniture stores, according to research by NAR.

The stability in California may mask a slowdown effect: a market that looks stable at first glance, but could show cracks in the coming weeks. If that happens, the state’s housing market slowdown won’t remain localized for long.