A leading economist has cautioned that President Donald Trump’s plan to lower home loan costs and improve housing affordability could end up worsening the challenges it is intended to solve.
Last week, the president said he had directed his “representatives”—later confirmed to be Fannie Mae and Freddie Mac—to purchase $200 billion in mortgage bonds, which he said would “drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable.”
But Mark Zandi, chief economist at Moody’s analytics, believes that such a plan is flawed, and wrote on X that artificially boosting housing demand in this way will “result in higher house prices, all else equal.”
Newsweek has contacted Fannie Mae and Freddie Mac via email and online contact form for an update on Trump’s proposal.
Why It Matters
Home loan costs are among the major pressures currently facing buyers in the U.S., as well as still-elevated prices and other ancillary fees that have dampened demand in recent years. This has led to surging inventory and owners struggling to sell their homes—with many now pulling their listings out of frustration and the inability to meet tighter buyer budgets.
While real-estate experts agree that tackling first the affordability hurdles of first-time buyers is critical, they see Trump’s plan as likely having only a modest impact on already declining mortgage rates, while risking a demand-driven boost in home prices themselves.
What To Know
When entities, typically the Federal Reserve or Treasury Department, purchase mortgage-backed securities, this injection lowers the yields on these bonds which can in turn reduce mortgage rates.
Trump’s post did not originally make clear who would be buying the bonds, but the Federal Housing Finance Agency’s director, Bill Pulte, later said this would be Fannie Mae and Freddie Mac, who the president said had sufficient cash to hand to complete the plan.
Pulte this week said that both government-sponsored enterprises were in the process of executing the “massive, great, and growing mortgage bond purchases” and are “doing a great job on this BUY.”
As Zandi wrote on Monday, however, Trump’s plan “will do little to make home-buying more affordable” given this would likely increase demand and exacerbate the “severe housing shortage in the U.S.”
Other experts have raised similar concerns, Realtor.com senior economist Joel Berner told Newsweek: “Even if mortgage rates did dip temporarily…the resulting boost to buyer demand could put upward pressure on home prices, offsetting some of the intended affordability relief.”
He said this dynamic would likely benefit sellers, particularly for embattled markets in the South and West, but that first-time buyers “would still face heightened competition” and “continue to struggle to put together a sufficient down payment.”
Berner added that the housing market’s core affordability challenge was on the supply side, and that “without meaningful gains in construction, the long-term impact would be minimal, aside from a potential one-time boost to home prices.”
And some have said the existing decline in mortgage rates lessens the need for such a cash injection.
“Theoretically it would work, but what I’m hearing is it wouldn’t really be worth it because they’re already on a downward trend,” Neal Hayes, founder of the U.K.-based Neal Hayes Mortgages, told Newsweek.
He added that the $200 billion was “not a huge amount” when it came to easing of this kind and said the plan, if carried out, would only reduce rates by “quite a small margin.”
However, 30-year mortgage rates in recent days dropped below the 6-percent threshold at which they had hovered for several months, which some attributed to Trump’s announcement.
“Sitting at 5.99 percent, mortgage rates have dropped to the lowest levels in nearly three years, driven by the president’s directive for Fannie Mae and Freddie Mac to purchase $200 billion of mortgage-backed securities,” Jeff DerGurahian, head economist at the mortgage lender loanDepot, wrote in a press note.
“The key now is the timing and cadence of these purchases, which will determine whether the impact is healthy or introduces volatility into the mortgage market.”
What People Are Saying
President Donald Trump wrote on Truth Social: “I am instructing my Representatives to BUY $200 BILLION DOLLARS IN MORTGAGE BONDS. This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable. It is one of my many steps in restoring Affordability, something that the Biden Administration absolutely destroyed.”
Federal Housing Finance director Bill Pulte posted on X: “Builders are telling us that their business has been REALLY good since the Fannie and Freddie $200 billion BUY announcement last week.”
Bankrate housing market analyst Jeff Ostrowski told Newsweek previously: “Government bond buying can inject stability and certainty in the mortgage market and therefore drive down rates.”
“It’s unclear whether $200 billion would move the needle, however,” he added. “While that sounds like a lot, for perspective, the Fed still holds $2 trillion in mortgage-backed securities, even after stopping its purchases and selling off its holdings over the past couple of years.”
Realtor.com senior economist Joel Berner told Newsweek: “Overall, while the goal of improving affordability is broadly shared, policies that fail to address the underlying supply shortage are unlikely to deliver meaningful or lasting relief. Sustainable progress depends on adding homes, through new construction and expanded inventory in chronically constrained markets, rather than short-term interventions that primarily shift demand.”
What Happens Next
In addition to the potential purchase, which neither Freddie Mac nor Fannie Mae have yet publicly commented on, experts are looking to the Fed’s upcoming interest rate decision as another factor which could alter the outlook for mortgage rates and overall housing market stability.
