Trump Wants Lower Mortgage Rates, Not Cheaper Houses

When President Donald Trump has talked about his recent proposals to make housing more affordable, he’s focused on one particular cost: mortgage rates.

He also made clear that he doesn’t want to hurt housing prices. It’s part of an effort to make homeownership more affordable without driving down housing values. 

“I am very protective of people that already own a house,” Trump said. “Because we have had such a good run, the house values have gone up tremendously, and these people have become wealthy.”

But whether housing affordability can be meaningfully improved without lowering home prices has raised questions among some economists.

In his speech last week to the World Economic Forum in Davos, Trump said that adding housing supply would lower home prices and disrupt the market by eroding the housing wealth that many homeowners have accumulated since values soared after the pandemic. However, he said that lower interest rates were “good for everybody.”

“This suggests that the administration sees lower mortgage rates as the preferred channel through which to improve affordability,” wrote Wells Fargo economists Charlie Dougherty and Ali Hajibeigi.

Homeowners are naturally wary of declining property values.

“As a homeowner, I don’t want to see the value of my property go down,” said Florida Gulf Coast University Economics Professor Shelton Weeks. ”Ultimately, that bit of pain for other homeowners is the pathway to truly alleviating the housing affordability crisis.” 

Trump Policies Target Mortgage Rates

So far, many of Trump’s key housing-market announcements have focused on borrowing costs.

His instructions for government-backed mortgage giants Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds have helped nudge borrowing costs lower. An idea to create longer 50-year mortgages could also give homebuyers more borrowing options.

But lower mortgage rates would probably boost demand. 

“Unless new listings pick up substantially, the lack of supply is likely to drive up prices, offsetting much of the affordability gain from lower mortgage rates,” wrote Nationwide Senior Economist Ben Ayers.

Housing Values Help Support Consumer Spending

Higher home values can boost the broader economy. An increase in housing wealth can help spur homeowners to spend more, something economists call the “wealth effect.” 

“Because a home is often the largest source of family wealth, price swings can materially impact how people spend, save and borrow,” the Dallas Federal Reserve wrote in a report this month.

So far, housing wealth has helped keep consumer spending going strong, something Trump would like to see continue, given that it accounts for more than two-thirds of U.S. economic activity. Consumer spending rose 0.3% in both October and November, according to data from the Bureau of Economic Analysis.

“Affluent consumers continued to buoy spending with an extra boost from wealth effects,” wrote Diane Swonk, chief economist at KPMG.

Trump Looks at Investor Purchase Rules, Immigration Enforcement to Boost Supply

If the government implements policies that increase housing supply, it could drive down home prices.

More homes would give buyers more options. But home sellers may have to lower their prices, potentially undercutting overall home values, which are up 57% since 2020, according to Zillow data.

“Every time you make it more and more and more affordable for somebody to buy a house cheaply, you’re actually hurting the value of those houses, obviously, because the one thing works in tandem with the other,” Trump said. “And I don’t want to do anything that’s going to hurt the value of people that own a house.”

However, Trump has proposed at least one measure to increase supply. His executive order last week to ban large institutional investor purchases sought to target Wall Street’s ownership stake in the housing supply.

But the limits on institutional investors will only affect a relatively small 2.5% share of the market, Wells Fargo wrote, and may not have enough reach to have a big impact. 

“The order only appears to erect hurdles for additional home sales to investors and does not look to be an outright ban,” Wells Fargo wrote. “There is no mention of completely stopping new sales, or mandating the liquidation of existing portfolios.”