Economists, including at America’s Credit Unions, are pondering the potential effects of any large-scale layoffs to reduce the number of federal government workers.  With approximately three million federal workers (2% of the total U.S. workforce), these changes could lead to widespread impact in several areas, including the housing market. Layoffs generally affect the housing market by decreasing demand, lowering home prices, and increasing foreclosures and distressed sales. The administration has indicated support of significant reductions. Some estimates project a 20% to 25% reduction in the federal workforce, affecting 600,000 to 750,000 employees.

The U.S. Census Bureau’s American Community Survey estimates just over 61% of homeowners pay a mortgage.

“Not all the mortgage-holding households will be forced to sell as there are several mitigating factors that would soften the impact. Some individuals may find new employment, while others may have dual-income households that prevent foreclosure-driven sales,” said America’s Credit Unions Senior Economist Dawit Kebede. “Furthermore, the broader housing market conditions would overshadow the impact of these potential distress sales.”

Kebede believes cuts could lead to localized market disruptions but are unlikely to upend the broader housing market. He added that the precise number of employees leaving, plus the nature of separation benefits offered, would also come into play.

With a widespread housing shortage already in place due to high mortgage rates (estimated to be 1.5 million to two million by Moody’s Analytics), prices are unlikely to drop meaningfully until mortgage rates are reduced.