Trump wants to rev up the housing market. How it could backfire.
Housing supply needs to ramp up as demand increases. Without both, home prices would likely rise.
The Trump administration announced its most direct move yet to lower housing costs. It also risks having the opposite effect.
President Donald Trump has outlined a plan to buy mortgage bonds in a bid to make homeownership more affordable. That ignited stocks related to the housing market—for good reason. The strategy puts downward pressure on mortgage rates by suggesting a big buyer for mortgage-backed securities.
Fixed 30-year mortgage rates fell below 6% for the first time since 2023 on Friday as traders reacted to the news. Mortgage rates in the 5% range would be good news for buyers. But supply needs to ramp up as demand increases. Without both in sync, home prices would likely rise.
Mortgage rates measured by Mortgage News Daily dropped to 5.99% midday on Friday. That number could move around, Matthew Graham, Mortgage News Daily’s chief operating officer, wrote in a blog post noting that the mortgage-backed securities market was volatile Friday.
“As of this afternoon, at least one lender has already bumped rates back up a bit," he wrote. “If more lenders follow suit, the end of day average rate could move up, but it would still likely be the lowest in at least a year."
If mortgage rates were to stabilize below 6%, it would be a big deal for home buyers long resigned to the sidelines, and for homeowners who purchased when rates were much higher.
“Our general philosophy, based on what we’ve been seeing, is that when mortgage rates start with a 5, you see increased demand for refinance and purchase," Bill Banfield, mortgage company Rocket’s Chief Business Officer, previously told Barron’s.
In between the positive news for buyers, analysts see a risk rearing its head: quick home price increases. Price gains in recent months have been modest, rising more slowly than wages and improving the home affordability picture, even as mortgage rates remained high.
“If there’s a drop in mortgage rates, it could lead to a reacceleration in home prices," says Ryan Gilbert, a BTIG analyst covering real estate services. “We could kind of end up back in the same situation that we were in before rates dropped."
Confronting today’s slow housing market with policy is a tightrope walk. Too much supply without enough demand would erode home values—and plenty of households’ sizable equity.
But if there aren’t enough home listings to sop up that demand, then price growth—which has petered out to a rate slower than wage growth—could reignite. That, in turn, would push home prices higher to compensate for the reduction in mortgage rates.
The Covid-19 pandemic’s double-digit home price appreciation, spurred in part by mortgage rates below 3%, wasn’t that long ago. While those extremes are unlikely to repeat—buyers should expect mortgage to remain in the high-five or low 6% range for now as a result of Thursday’s announcement—the risk of rising prices remains.
“If there is not a coincident increase in the supply of homes with this new demand push, all we’ll see is another rise in home prices that offsets the benefit of lower mortgage rates," wrote Peter Boockvar, an economist and chief investment officer of One Point BFG Wealth Partners. “We have again a demand push at the federal level while the supply comes from the local level both in terms of permitting and new home delivery."
Trump is expected to detail his housing initiatives at the World Economic Forum at Davos later this month. Investors will be listening for information about home building initiatives. Builders in recent years have offered buyers incentives and discounts, which keep homes selling, at the expense of their profit margins.
“We are keeping in mind that any proposal that would be positive for home builders could also come with proposals that could be negative," BTIG’s Gilbert said.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
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