Everyday Economics: The federal government delayed the housing recovery

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(The Center Square) – Existing-home sales fell in October to their slowest pace since August 2010, according to the National Association of Realtors. Federal policy is pulling in two directions: HUD has cut lenders’ costs on taxpayer-backed FHA loans, while tariffs, the war with Iran and federal borrowing add to the inflation and interest-rate pressures that keep mortgages expensive.

According to Freddie Mac, the 30-year fixed rate has been climbing since the war began and now exceeds year ago levels. 

According to the National Association of Realtors, October existing-home sales fell to a seasonally adjusted annual rate of 3.75 million, the weakest pace since August 2010, and 8.8% below a year earlier. According to my calculations using NAR’s unadjusted data, actual October closings fell 11.7%, partly because October had one fewer business day than last year. The unadjusted annual decline deepened sharply from September’s 4.2%.

The year started better than those figures suggest. According to the same calculations, 3.4 million homes sold through October, just 0.6% fewer than during the same period in 2025.

My October housing report, based on Redfin data, found that seasonally adjusted pending sales fell 3.6% from September to their lowest level since April 2020. The same report found that active listings increased even though fewer sellers listed, because homes are selling more slowly.

The problem is still affordability. My report calculated that monthly principal and interest on the median-priced home reached $2,137 with 20% down, up 11.2% from a year earlier. By my calculation, higher rates added approximately $223 to the monthly payment, while a slightly lower Redfin median sale price saved about $7.

HUD has targeted a different cost: making the loan.

According to HUD, June changes streamlined FHA appraisal-review requirements and eliminated a duplicative homebuyer disclosure form. HUD estimates the appraisal change alone saves lenders about $425 per review, or roughly $3.3 million a year industrywide. HUD’s announcement does not say how much of those savings will reach borrowers. The Appraisal Institute has said eliminating long-standing review requirements raises questions about oversight of collateral on FHA loans, which the federal government insures, American Banker reported.

Any savings from lower origination costs are expected to be small next to the roughly $223 a month that higher rates added to the typical payment.

Other federal policies affect what borrowers pay each month.

According to Federal Reserve Bank of New York researchers, tariffs raise prices for imported and domestically produced goods. According to the Energy Information Administration, attacks on tankers, constrained shipping and falling inventories pushed oil prices higher again in October.

Federal borrowing matters, too. According to the Congressional Budget Office, growing government debt crowds out private investment and contributes to higher interest rates. My analysis found that sticky inflation and worries about U.S. fiscal sustainability have pushed long-term Treasury yields higher, and mortgage rates track those long-term yields far more closely than the Federal Reserve’s policy rate.

Producer prices are still rising.

According to the Bureau of Labor Statistics (BLS), producer prices rose 6.5% over the year through October, their largest increase since November 2022. BLS reported that truck freight prices rose 3.9% in October, accounting for more than 80% of the increase in services prices, even as diesel prices fell 7.9% from September. Truck freight prices were up 24.6% from a year earlier, according to BLS.

According to my analysis of BLS producer price data, retail margins narrowed for computers, appliances and sporting goods, consistent with shoppers resisting higher prices. 

This week’s retail sales report could help clarify how spending is holding up. Retail sales and builder confidence arrive Tuesday, followed by housing starts and permits Wednesday.