Mortgages won't fix what ails housing

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The American mortgage market is having a moment, and not in a good way.

In the span of a week, prospective homebuyers have watched mortgage rates briefly touch their lowest levels since 2022, then start climbing again. They've heard President Donald Trump float a slate of ambitious proposals to make homeownership more accessible. And then they learned that pending home sales just collapsed by the largest margin since the early days of the pandemic.

If you're confused about what any of this means for your chances of buying a house, you're not alone. The housing market has become a policy playground, with officials tossing out proposal after proposal to make mortgages easier or cheaper to get.

But economists who study housing keep repeating a message that nobody seems to want to hear: financing gimmicks can't solve a problem that's fundamentally about math.

A grim December catches everyone off guard

Pending home sales fell 9.3% in December, according to the National Association of Realtors (NAR). That's the steepest monthly decline since April 2020, when the world was shutting down and nobody was thinking about open houses. The drop was broad, hitting all four regions of the country, with three posting double-digit declines.

What made the data especially jarring was its timing. After several months of modest improvement in housing activity, economists had allowed themselves some cautious optimism. Mortgage rates had been drifting lower. Home prices were growing at a slower pace than the previous year. The spring selling season was approaching. Then December's numbers arrived like a bucket of cold water.

Even NAR’s chief economist acknowledged the uncertainty, saying it's unclear whether the figure represents a temporary blip or the beginning of something worse. Winter data can be tricky to interpret, given holiday schedules and weather disruptions. But even accounting for those factors, the decline was the worst December on record going back more than two decades.

That same day, President Trump used his speech at the World Economic Forum in Davos to outline his housing agenda. The proposals are creative, if nothing else. But each comes with significant complications that housing economists say could backfire.

Take the 50-year mortgage the administration has been exploring. It would reduce monthly payments by a few hundred dollars. But homeowners would pay dramatically more in total interest over the life of the loan.

Portable mortgages, which would let homeowners transfer their interest rate to a new property, present a different problem. They'd help existing homeowners who locked in low rates before 2022, but they'd widen the gap between those lucky borrowers and first-time buyers who have no rate to bring with them. Economists warn the policy could actually push prices higher by giving repeat buyers more purchasing power.

The administration's proposed ban on institutional investors sounds appealing, especially to anyone who's lost a bidding war to a faceless LLC. 

But the data suggests these mega-landlords own only about 2% of single-family rentals, and they've slowed their purchasing significantly as rates have risen. It's a satisfying villain, but something of a red herring.

The math problem no one wants to solve

The uncomfortable truth beneath all the policy debates is that the United States has a housing shortage, and there's no quick way to fix it. By some estimates, the country needs millions more units to meet demand. 

Building them will require action at state and local levels, where zoning laws and permitting processes often make construction slow and expensive.

This is why many economists greet mortgage-focused proposals with skepticism. Lower rates and longer terms might help individual buyers at the margins, but they also risk inflating demand without adding supply. When more people can afford to bid on the same limited number of homes, prices tend to rise rather than fall.

The message from housing economists has become almost a mantra: it's the supply, stupid. The affordability crisis exists because there aren't enough homes to go around. Changing loan terms doesn't change that math. 

It's also a much harder problem to solve. Flashy mortgage proposals can be announced from a podium in Davos, but building more homes means fighting through zoning laws and permitting battles state by state, county by county, city by city. There's no single lever to pull, no executive order that conjures houses into existence (although the tariffs aren’t helping, either).

For would-be buyers watching the headlines, the message is frustrating but important. The mortgage market will keep making news. Rates will rise and fall. Politicians will propose new programs. 

But until builders break ground on millions of new homes, the fundamental equation won't change. The path to affordable housing runs through construction sites, not spreadsheets.