Out of all of his ideas, requiring Fannie Mae and Freddie Mac to buy $200 billion of mortgage-backed securities was his best step in the right direction.
President Donald Trump and his administration have been throwing out all kinds of ideas to make housing more affordable.
With affordability in the U.S. a key issue heading into mid-term elections, the pro-business president has proposed a litany of cost-cutting measures, while at the same time leaving business executives grappling with foreseeable revenue losses.
Let’s explore his ideas and others and what I think about them …
Out of all of Trumps’ ideas, requiring mortgage giants Fannie Mae and Freddie Mac to purchase $200 billion of mortgage-backed securities or MBSs is his best step in the right direction. This moved mortgage rates down a good quarter-percent. Locally, rates are now hovering at 5.5%, whereas last week they were at 5.75%.
Here is a quick explanation of how buying MBSs brings mortgage rates down: There is an inverse relationship between bond prices and interest rates or yields. Higher demand for MBSs drives bond prices up. As prices rise, interest rates or yields fall.
Trump’s worst idea was his pressure campaign and now criminal investigation of Federal Reserve Chairman Jerome Powell, a tactic to bully Powell into lowering short-term rates.
Fed independence matters to best tame inflation by raising short-term rates, and making money cheaper by lowering short-term rates when the economy softens.
President Richard Nixon pressured his Fed chair (Arthur Burns) to keep rates low, heading into the 1972 election. Inflation averaged over 7% from 1970-1978 and came to be known as the Great Inflation of the 1970s.
Taking steps to ban large institutional investors from buying more single-family homes also was an excellent idea. (Gov. Gavin Newsom announced a similar plan for California.) Large institutional investors (those owning more than 100 properties) own 3% of the single-family rental stock nationwide, according to the Brookings Institute. If these big boys aren’t stopped, eventually they may own 5%-10% of single-family homes.
The U.S. has about 85 million single family homes. Of those, about 15 million are single-family rentals. Three percent is 450,000 single-family homes owned by large investors. I saw another estimate of large institutional investors owning 500,000 to 700,000 from Attom Data Solutions (using a 2022-2024 timeline).
Trump should go further by pushing legislation to incentivize these large institutional investors to sell what they have by heavily taxing them on each home retained, but also giving them a carrot like a tax credit for each home they sell.
